The theory of purchasing power parity asserts that exchange rates between any two countries will adjust to reflect changes in:

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The theory of purchasing power parity suggests that exchange rates between two countries will adjust to reflect changes in the price levels of these two countries. This means that the currency of the country with a higher price level will depreciate relative to the currency of the country with a lower price level. This should eventually result in equalization of the prices of goods and services between the two countries.

The Theory of Purchasing Power Parity Asserts That Exchange Rates