The theory of relative purchasing power parity states that,between two nations,the ________.

Question

Quizplus · Accepted Answer

The theory of relative purchasing power parity suggests that the exchange rate differential between two nations is directly related to the difference in their inflation rates. In other words, a currency with higher inflation will see its value depreciate relative to a currency with lower inflation. Therefore, option B is the correct choice. Option A is incorrect because the theory suggests a relationship between inflation rates. Option C is incorrect as the theory does not make any predictions about the relative strength of currencies. Option D is also irrelevant, as it refers to interest rates, which are not explicitly mentioned in the theory.

The Theory of Relative Purchasing Power Parity States That,between Two