Purchasing power parity

In economics, purchasing power parity (PPP) is a method used to calculate an alternative exchange rate between the currencies of two countries. The PPP measures how much a currency can buy in terms of an international measure (usually dollars), since goods and services have different prices in some countries than in others.

Related Topics:
Economics - Exchange rate - Currencies

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PPP exchange rates are used in international comparisons of standard of living. A country's GDP is originally tallied in its local currency, so any comparison between two countries requires converting currency. Comparisons using real exchange rates are considered unrealistic, since they do not reflect price differences between the countries. The differences between PPP and real exchange rates can be significant.

Related Topics:
Standard of living - GDP

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For example, GDP per capita in China is ca. 1,400 U.S. Dollars(US$), while on a PPP basis, it is ca. 6,200 US$. At the other extreme, Japan's nominal GDP per capita is ca. 37,600 US$, but its PPP figure is only 31,400 US$.

Related Topics:
GDP per capita - China - Dollars - Japan

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