What is purchasing power parity?

Question

Accepted Answer

Purchasing power parity (PPP) is an economic theory that compares the currencies of different countries based on their purchasing power.

PPP is used to determine the relative value of currencies by comparing the prices of goods and services in different countries.
It suggests that exchange rates should adjust to equalize the purchasing power of different currencies.
For example, if a Big Mac costs $5 in the United States and €4 in Europe, PPP would suggest that the exchange rate between the US dollar and the euro should be 1.25 ($5 divided by €4) to achieve purchasing power parity.
PPP is often used to make international comparisons of living standards and to analyze the competitiveness of different economies.

Accepted Answer

Purchasing power parity (PPP) is a popular metric used by macroeconomic analysts that compares different countries' currencies through a "basket of goods" approach. Purchasing power parity (PPP) allows for economists to compare economic productivity and standards of living between countries.

What is purchasing power parity?

Top The Smart Cube Senior Analyst interview questions & answers

Popular interview questions of Senior Analyst

Top HR questions asked in The Smart Cube Senior Analyst