If at current exchange rates it was cheaper to buy a product in country A than country B, the purchasing power parity theory would increase the relative exchange value of country A's currency.

Question

Quizplus · Accepted Answer

According to the purchasing power parity (PPP) theory, differences in price levels between countries will lead to adjustments in exchange rates. If a product is cheaper in country A than in country B, demand for country A's currency should increase as buyers convert their money to purchase the cheaper goods, leading to an appreciation of country A's currency relative to country B's.

If at Current Exchange Rates It Was Cheaper to Buy