According to purchasing power parity, currencies will generally appreciate in countries whose inflation rates are higher than the rest of the world.

Question

Quizplus · Accepted Answer

According to purchasing power parity, currencies will generally depreciate in countries whose inflation rates are higher than the rest of the world. This is because a higher inflation rate reduces the value of the currency in the global market, making imports more expensive and exports cheaper. Therefore, the currency depreciates to bring the prices to an equal level with other countries, as per the PPP theory.

According to Purchasing Power Parity, Currencies Will Generally Appreciate in Countries