Relative PPP states that the percentage change in the exchange rate should equal the difference in the percentage change in price levels.

Question

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Relative Purchasing Power Parity (PPP) suggests that the rate of depreciation or appreciation of one currency relative to another will be equal to the difference in inflation rates between the two countries. This means the exchange rate adjusts to maintain the purchasing power of each currency.

Relative PPP States That the Percentage Change in the Exchange