Purchasing power parity

I read an article on what GDP is, you might be interested in such a thing as purchasing power parity (PPP).

It is easy to guess that the science of economics does not stand still and is constantly developing, inventing new tools for managing the global market for goods and services.

For the first time this theory was justified by the Swedish economist Karl Gustav Kassel. This happened in the first half of the 20th century.

What is PPP

The purchasing power parity (PPP) is the ratio of two or more monetary units of currencies of different countries, determined by their purchasing power in relation to a specific set of goods and services.

Consider this theory by example.

For example, if one bread in Russia costs 50 rubles, and in the USA - 2 dollars, then the purchasing power parity of these two countries will be equal to 25 rubles to 1 dollar.

Ideally, the theory should look like this: for the same amount of money converted at the current exchange rate into national currencies in different countries of the world one can buy the same amount of goods and services (in the absence of transportation costs).

Of course, this will probably never be achieved. However, purchasing power parity is actively used in the relevant areas for scientific calculations.

Watch the video: Purchasing Power Parity PPP (November 2019).