Purchasing Power Parity (PPP)
What is Purchasing Power Parity?
The idea that exchange rates should adjust so the same goods cost the same in different countries.
Understanding Purchasing Power Parity
Purchasing power parity compares the cost of a common basket of goods across countries. If a basket costs more in one country after converting currencies, PPP suggests that country's currency is overvalued.
Economists also use PPP exchange rates to compare GDP and living standards, because a dollar buys more in some countries than others.