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Purchasing power parity |
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Purchasing 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 parityThe notion that the ratio between domestic and foreign price levels should equal the equilibrium exchange rate between domestic and foreign currencies.Purchasing power parity Similar MatchesAbsolute form of purchasing power parityAbsolute 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." Purchasing power of the dollarPurchasing power of the dollarThe amount of goods and services that can be exchanged for a dollar as compared with amount of a previous time period. Purchasing power parity exchange ratePurchasing power parity exchange rateAn exchange rate calculated to yield absolute purchasing power parity. Useful for making comparisons of real values (wages, GDP) across countries with different currencies. Since the purchasing power parity theory is rarely correct, this contrasts with the nominal exchange rate. 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 powerPurchasing powerThe amount of goods that money will buy, usually measured (inversely) by the CPI. Further SuggestionsPurchasing powerPurchasing power risk Purchasing power parity theory purchasing power |
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