PPP theory predicts that changes in ______________ will result in a change in exchange rates.

Question

Quizplus · Accepted Answer

PPP theory suggests that changes in relative prices across countries will result in changes in exchange rates, as currency values adjust to maintain parity in purchasing power between countries. Changes in interest rates, unemployment rates, statutory or wholesale prices may have an impact on exchange rates indirectly, but are not direct determinants in PPP theory.

PPP Theory Predicts That Changes in ______________ Will Result in a Change