According to purchasing power parity, the nominal exchange rate between the U.S. and another country should equal the price level of foreign goods divided by the price level of U.S. goods.

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Purchasing Power Parity (PPP) theory states that in the absence of transaction costs and barriers to trade, the nominal exchange rate between two countries should equal the ratio of the price levels in those countries, effectively making the cost of a basket of goods the same in both countries when priced in a common currency.

According to Purchasing Power Parity, the Nominal Exchange Rate Between