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Purchasing Power Parity - PPP
What does it mean?
A theory stating that over the long term the exchange rate between two currencies adjusts according to currencies' relative purchasing power.
In Other Words...
In other words, the exchange rate adjusts so that an identical good in two different countries has the same price when expressed in the same currency. For example, a chocolate bar that sells for CAD $1.50 in a Canadian city should cost USD $1.00 in a U.S. city when the exchange rate between Canada and the U.S. is 1.50 CAD/USD. (Both chocolate bars cost USD $1.00.)
Related Links
Forces Behind Exchange Rates - Exchange rates are important not only when you are traveling. If you are an investor, you need to be aware of factors affecting currencies.
Economics Basics Tutorial - Learn economics principles such as the relationship of supply and demand, elasticity, utility, and more!
Related Terms
Deflation | Economics | Inflation | Purchasing Power
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