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Absolute form of purchasing power parity |
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Absolute form of purchasing power parityA theory that prices of products of two different countries should be equal when measured by a common currency. Also called the "law of one price."Absolute form of purchasing power parity Similar MatchesPurchasing power parity theoryPurchasing power parity theoryA theory of the exchange rate that the rate will adjust to achieve purchasing power parity, in either its absolute or its relative form. Relative form of purchasing power parityRelative form of purchasing power parityTheory that the rate of change in the prices of products should be somewhat similar, but not absolutely the same when measured in a common currency, as long as transportation costs and trade barriers are unchanged. Purchasing power parityPurchasing power parity1. The equality of the prices of a bundle of goods (usually the CPI) in two countries when valued at the prevailing exchange rate. Called absolute PPP. 2. The equality of the rates of change over time in the prices of a bundle of goods in two countries when valued at the prevailing exchange rate. Called relative PPP. Implies that the rate of depreciation of a currency must equal the difference between its inflation rate and the inflation rate in the currency to which it is being compared. Purchasing power riskPurchasing power riskRelated: Inflation risk Purchasing powerPurchasing powerThe amount of goods and services which can be purchased by a given unit of currency after taking into account the effect of inflation. Purchasing power can be assessed by tracking an index of consumer prices and comparing different periods, for example the early 1990s and the current time. Inflation will result in reduced purchasing power over a period of time. Further SuggestionsPurchasing power parityPurchasing power parity exchange rate Purchasing power Purchasing power Purchasing power of the dollar |
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