Suppose the prices of Australian goods are rising faster than prices of goods in Great Britain.If purchasing power parity holds,then

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According to purchasing power parity, the exchange rate between two currencies should adjust in such a way that the same basket of goods costs the same in both countries. If prices of Australian goods are rising faster than prices of goods in Great Britain, it means that Australian goods are becoming relatively more expensive compared to British goods. Therefore, according to the theory of purchasing power parity, the Australian dollar should depreciate against the British pound to restore the balance of relative prices. That is, it will take more Australian dollars to buy one British pound.

Suppose the Prices of Australian Goods Are Rising Faster Than