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Purchasing Power Parity (PPP)

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Ashley Foster

on 30 November 2015

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Transcript of Purchasing Power Parity (PPP)

Purchasing Power Parity (PPP)
What Does it Mean?
Purchasing Power Parity is the reasoning behind the fact that the exchange rates adjust in order to keep a constant purchasing power over different currencies around the world.

Absolute PPP
Absolute: No matter where you buy something the price is the same around the world. $1 will get you the same amount of items anywhere.
For absolute PPP to hold there must be zero transaction cost, no trade barriers, and products must be identical.
Relative PPP
Relative:
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