Purchasing-power parity theory suggests that one unit of any given currency should have the same real value in all countries.

Question

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Purchasing-power parity theory suggests that the exchange rate between two currencies should adjust to ensure that a basket of goods and services that are priced in different currencies have the same real value. Therefore, one unit of any currency should have the same purchasing power in different countries.

Purchasing-Power Parity Theory Suggests That One Unit of Any Given