The theory of purchasing power parity states that exchange rates between any two currencies will adjust to reflect changes in

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The theory of purchasing power parity is based on the idea that exchange rates between two currencies will adjust to reflect changes in the price levels of each country. In other words, if one country's price level increases, its currency will depreciate relative to the other country's currency, and vice versa. This is because the purchasing power of the two currencies should be equal when exchanging goods and services. The other options (A, B, and C) are all related to economic factors, but they are not directly tied to the theory of purchasing power parity.

The Theory of Purchasing Power Parity States That Exchange Rates