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PPP

PPP. Place logo or logotype here, otherwise delete this. What is Purchasing Power Parity (PPP). An economic theory to estimates the adjustment needed for the exchange rate between 2 countries in order for the exchange to be equivalent to each currency's purchasing power.

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PPP

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  1. PPP Place logo or logotype here, otherwise delete this.

  2. What is Purchasing Power Parity (PPP) • An economic theory to estimates the adjustment needed for the exchange rate between 2 countries in order for the exchange to be equivalent to each currency's purchasing power.

  3. How PPP is Calculated? • The relative version of PPP is calculated as: • E=P1/P2 • Where: E: the exchange rate of currency 1 to currency 2 P1: price of good "x" in currency 1P2: price of good "x" in currency 2

  4. E adjusts so that an identical good in 2 different countries will have the same price when expressed in the same currency. Example: a cup of coffee that sells for KD1.50 in a Kuwait should cost US$1.00 in U.S. when the exchange rate between Kuwait and the U.S. is 1.50 USD/KD. (Both cups cost US$1.00.)

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