Purchasing Power Parity (PPP) Explained
Purchasing Power Parity (PPP) is a method of comparing economies and currencies by accounting for differences in the cost of goods and services between countries.
Purchasing Power Parity (PPP) is a method of comparing economies and currencies by accounting for differences in the cost of goods and services between countries.
The idea
PPP suggests that in the long run, exchange rates should adjust so that an identical basket of goods costs the same across countries. GDP measured at PPP reflects real purchasing power.
Why it matters
When measured at PPP, developing economies like India appear larger relative to their market-exchange-rate GDP, because prices there are generally lower.
Why it matters for UPSC
GDP at PPP versus market exchange rates is a commonly tested Economy concept.
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What does Purchasing Power Parity measure?
It compares economies by adjusting for differences in the cost of goods and services across countries.
Why is India's GDP larger at PPP?
Because prices for many goods and services are lower in India, so a given income buys more.