According to the theory of purchasing-power parity,the real exchange rate defined as foreign goods per unit of U.S.goods will equal the exchange rate defined as units of foreign currency per dollar times the domestic price level divided by the foreign price level.

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This is the mathematical expression for the theory of purchasing-power parity. It is based on the idea that in the long run, exchange rates should adjust to equalize the purchasing power of different currencies.

According to the Theory of Purchasing-Power Parity,the Real Exchange Rate