Purchasing power parity is a principle that states exchange rates are set so that the prices of similar products in different countries are about the same.

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Purchasing power parity (PPP) is a principle that suggests that the exchange rate between two currencies will adjust to ensure that a basket of goods and services has an equivalent price in both countries. This means that if a particular good or service costs more in one country than another, the exchange rate should adjust so that the cost is effectively equalized when converted to the other currency. Therefore, prices of similar products in different countries should be about the same, based on PPP.

Purchasing Power Parity Is a Principle That States Exchange Rates