Definition
- Purchasing power parity
- A purchasing power parity exchange rate is the rate that equalises the prices of the same goods in two countries.
Example
Can you think of an example of purchasing power parity?
A basket costs £100 in the UK and 4,000 rupees in India, so the PPP rate is 40 rupees to the pound, whatever the market rate.
Test yourself
Can you name the three adjustments that take a country's GDP to a figure fit for comparing living standards?