If prices in the United States rise less rapidly than in Canada, which one of the following would be expected according to purchasing power parity?

Question

Quizplus · Accepted Answer

Purchasing power parity (PPP) suggests that exchange rates will adjust to compensate for changes in price levels between two countries. If prices rise less rapidly in the U.S. than in Canada, it means the purchasing power of the U.S. dollar is relatively stronger or becoming stronger compared to the Canadian dollar. Therefore, the value of the Canadian dollar is expected to decline relative to the U.S. dollar.

If Prices in the United States Rise Less Rapidly Than