The theory of purchasing-power parity states that a unit of a country's currency should be able to buy the same quantity of goods in foreign countries as it does in the domestic economy.

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Purchasing-power parity (PPP) theory posits that in the absence of transaction costs and barriers to trade, the exchange rate between two currencies should equalize the price of a basket of goods and services in each country, allowing a unit of currency to have the same purchasing power in different countries.

The Theory of Purchasing-Power Parity States That a Unit of a Country's