Question

What is the purchasing power parity exchange rate?

Short answer

Purchasing Power Parity (PPP) is a principle that claims that all currency exchange rates are equal and that all nations have the same buying power.

Step-by-step solution

Concept of Purchasing Power Parity:

Purchasing Power Parity (PPP) is a concept that states that exchange rates across currency are all in balance and that countries have the same purchasing power. This means that as the cost of goods and services rises (inflation), the exchange rate falls in order to revert to PPP.

Explanation of final answer.

The buying power equivalency transfer rate is the rate that levels the prices of products and services in various countries. The PPP exchange rate serves two purposes. It is used for two purposes: first, for comparing GDP, and second, for other economic figures. By conducting thorough examinations of commodities traded globally, the World Bank's international comparison program produces the PPP exchange rate for all countries.