Purchasing Power Parity (PPP) is an economic theory that suggests that in the long run, exchange rates between two countries should stabilize at the rate that makes the purchasing power of each country's currency equal. In other words, the theory suggests that the exchange rate between two countries should adjust to reflect the differences in the prices of goods and services in each country.

For example, let's say that one US dollar can buy one loaf of bread in the United States and that the same dollar can buy two loaves of bread in Canada. According to PPP theory, the exchange rate between the US and Canadian dollars should be such that one US dollar can buy two Canadian dollars, so that the purchasing power of each currency is equal.

PPP is used to compare living standards and economic development among countries. It is often used to calculate GDP (gross domestic product) and to measure the relative cost of living between countries. However, there are several challenges in using PPP, including differences in the quality of goods and services, non-tradable goods, and variations in consumption patterns across countries.

🌐 Oecd.Org:
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🕛TimeLine:
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00:01 - Introduction
00:19 - PPP Example
00:49 - Oecd Website
01:28 - USD/INR PPP Comparison
03:16 - End Card

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