The _____________ theory tells us that a country with a high inflation rate will see deprecation in its currency exchange rate.

Question

Quizplus · Accepted Answer

According to the theory of Purchasing Power Parity (PPP), the exchange rate between two countries is determined by the relative prices of goods and services in each country. If a country has a higher inflation rate than another country, its prices will rise faster, making its goods relatively more expensive compared to the other country. As a result, the demand for its currency will decrease, causing depreciation in its exchange rate.

The _____________ Theory Tells Us That a Country with a High