The full form of PPP is Purchasing Power Parity. One popular macroeconomic analysis metric to compare economic productivity and standards of living between countries is purchasing power parity (PPP). PPP is an economic theory that compares different countries’ currencies through a “basket of goods” approach.
According to this concept, two currencies are in equilibrium—known as the currencies being at par—when a basket of goods is priced the same in both countries, taking into account the exchange rates.
- Purchasing power parity (PPP) is a popular metric used by macroeconomic analysts.
- PPP compares economic productivity and standards of living between countries.
- Some countries adjust their gross domestic product (GDP) figures to reflect PPP.
What PPP means?
PPP is an economic theory that compares different countries’ currencies through a “basket of goods” approach.
What is GDP and PPP?
There are two ways to measure GDP (total income of a country) of different countries and compare them. One way, called GDP at exchange rate, is when the currencies of all countries are converted into USD (United States Dollar). The second way is GDP (PPP) or GDP at purchasing power parity (PPP).
What is PPP example?
The Real Exchange Rate (RER) is a related topic to PPP, it calculates, for example, how many iPods in country A is equal to one iPod in country B. It usually is calculated with a basket of goods
Why PPP is important?
This is important because currencies that are over or undervalued according to PPP are likely to correct over time, leading to potential economic impacts and long-term fluctuations in the exchange rate. PPP helps provide some predictability to these economic impacts.