Purchasing-power parity theory postulates that the change in the exchange rate between two currencies is proportional to the change in the ratio in the two countries' general price levels

Question

Quizplus · Accepted Answer

This statement correctly describes the concept of purchasing-power parity theory. It suggests that if one country's prices rise faster than another's, then the exchange rate should adjust to reflect the new purchasing power of each currency.

Purchasing-Power Parity Theory Postulates That the Change in the Exchange