Purchasing power parity says that:

Question

Quizplus · Accepted Answer

Purchasing power parity states that differences in inflation rates between countries will lead to changes in exchange rates. This is because if the inflation rate is higher in one country, the purchasing power of its currency will decrease relative to other countries, causing a depreciation of its exchange rate. Conversely, if the inflation rate is lower in one country, the purchasing power of its currency will increase relative to other countries, causing an appreciation of its exchange rate.

Purchasing Power Parity Says That