1. The "relative" version of purchasing power parity (PPP) theory states:
2. The "law of one price" holds
3. The level of exchange rate adjusts so that the price of similar traded goods is equalized across the world
4. A country experiencing a higher rate of inflation should also see its currency depreciate
5. The equilibrium real exchange rate is constant at 1
6. The equilibrium real exchange is not equal to 1 but stays constant