Purchasing power parity (PPP)

Q.  What is purchasing power parity (PPP)?
- Published on 21 Mar 16

a. Money needed to purchase same goods and services in two places
b. Spending capacity of two individuals
c. Spending capacity of two nations
d. Money needed to purchase two goods or services

ANSWER: Money needed to purchase same goods and services in two places
 
  • The PPP model refers to a method used to work out the money that would be needed to purchase the same goods and services in two places.
  • Across countries, this is used to calculate an implicit foreign exchange rate, the PPP rate, at which a given amount of money has the same purchasing power in different countries.
  • It is price of an identical good in two countries when the prices are expressed in the same currency. For example, a particular TV set that sells for 750 Canadian Dollars [CAD] in Vancouver should cost 500 US Dollars [USD] in Seattle when the exchange rate between Canada and the US is 1.50 CAD/USD. Thus the good costs the same in two places.

Related Content

➨ Post your comment / Share knowledge


Enter the code shown above:

(Note: If you cannot read the numbers in the above image, reload the page to generate a new one.)
▲