Explain the theory of purchasing power parity. Explain how will you test that the purchasing power exists.

Purchasing power parity (PPP) is a theory which states that exchange rates between currencies are in equilibrium when their purchasing power is the same in each of the two countries. This means that the exchange rate between two countries should equal the ratio of the two countries' price level of a fixed basket of goods and services. When a country's domestic price level is increasing (i.e., a country experiences inflation), that country's exchange rate must depreciated in order _______ ______ _________ _________ ______ ____ _________ _________ __________ ______.
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