The ________ theory tells us that a country with a high inflation rate will see deprecation in its currency exchange rate.
A)law of one price
B)monetary system
C)purchasing power parity
D)price inflation

Question

Quizplus · Accepted Answer

Purchasing power parity theory states that in the long run, the exchange rate between two currencies should move towards the rate that equalizes the prices of an identical basket of goods and services in both countries. A country with a high inflation rate will tend to have higher prices for its goods, making them less attractive to foreign buyers, and reducing the demand for its currency. This, in turn, leads to a depreciation in the exchange rate.

The ________ Theory Tells Us That a Country with a High