The ________ states that exchange rates between any two currencies will adjust to reflect changes in the price levels of the two countries.

Question

Quizplus · Accepted Answer

The theory of purchasing power parity states that exchange rates between any two currencies will adjust to reflect changes in the price levels of the two countries. This means that if one country has a higher rate of inflation and a corresponding increase in prices, the exchange rate will adjust so that the cost of goods between the two countries is relatively equal.

The ________ States That Exchange Rates Between Any Two Currencies