purchasing power parity

Question 1

purchasing power

Answer 1

the amount of goods and services you can buy with a certain amount of money

Question 2

law of one price

Answer 2

one good in one country should have the identical price in another country when converting between currencies

Question 3

absolute ppp

Answer 3

same products in different countries should be equal in price. which does not adjust for inflation. the exchange rate should be finding the ratio. cannot hold due to non tradable goods, transportation costs and trade restrictions.

Question 4

relative ppp

Answer 4

same products in different countries should be equal in price. which adjusts for inflation. the exchange rate should be finding the ratio. cannot hold due to non tradable goods, transportation costs and trade restrictions.

Question 5

what is ppp used for

Answer 5

used to compare economic productivity and living standards between countries