​The purchasing power parity predicts that if the price level in the US falls relative to Mexico,

A) ​The dollar will appreciate relative to the peso
B) The dollar will depreciate relative to the peso
C) There is no effect on either currency
D) ​PPP predicts price level will normalize in the long-run

Price Level

The cumulative average pricing for goods and services across various industries within the economy.

Purchasing Power Parity

An economic theory that compares the relative value of different currencies based on the purchasing power of various goods and services, aiming to measure the real exchange rate.

Peso

The currency used in several countries including Mexico and the Philippines, symbolized by the "$" sign or "₱".