Purchasing Power Parity (PPP) is an economic theory that is the rates of currency conversion compared different countries’ currencies through the price relatives which shows the ratio of the prices in national currencies of the same good or service in different countries. A PPP equalise the purchasing power of different currencies by eliminating the differences in price levels between countries. US Dollars at the PPP exchange rate (PPP dollars) will buy the same basket of goods and services in all countries.
Reference Definition by Wikipedia: Purchasing power parity (PPP) is a measurement of prices in different countries that uses the prices of specific goods to compare the absolute purchasing power of the countries’ currencies. In many cases, PPP produces an inflation rate that is equal to the price of the basket of goods at one location divided by the price of the basket of goods at a different location. The PPP inflation and exchange rate may differ from the market exchange rate because of poverty, tariffs, and other transaction costs. PPP exchange rates are widely used when comparing the GDP of different countries.
Related Definitions in the Project: The Commercial Definitions
