“PURCHASING POWER PARITY”
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*theories that invoke purchasing power parity (PPP) assume that in some circumstances (for example, as a ‘long-run tendency’) it would cost exactly the same number of, for example, ‘US dollars’ to buy ‘euros’ and then to use the ‘proceeds’ to buy a ‘market basket’ of ‘goods’ as it would cost to use those ‘dollars’ directly in purchasing the ‘market basket’ of ‘goods’*
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(the concept of ‘purchasing power parity’ allows one to estimate what the ‘exchange rate’ between 2 ‘currencies’ would have to be in order for the exchange to be at par with the ‘purchasing power’ of the two countries’ ‘currencies’)
(using that ‘PPP’ rate for hypothetical ‘currency conversions’, a given amount of one ‘currency’ thus has the same ‘purchasing power’ whether used directly to purchase a market basket of goods or used to convert at the ‘PPP rate’ to the other ‘currency’ and then purchase the market basket using that ‘currency’)
(observed deviations of the ‘exchange rate’ from ‘purchasing power parity’ are measured by deviations of the ‘real exchange rate’ from its PPP value of ‘1’)
(PPP exchange rates help to minimize misleading international comparisons that can arise with the use of ‘market exchange rates’)
(for example, suppose that 2 countries produce the same physical amounts of goods as each other in each of 2 different years)
(since ‘market exchange rates’ fluctuate substantially, when the ‘GDP’ of 1 country measured in its own currency is converted to the other country’s currency using ‘market exchange rates’, 1 country might be inferred to have higher ‘real GDP’ than the other country in 1 year but lower in the other; both of these inferences would fail to reflect the reality of their relative ‘levels of production’)
(but if one country’s GDP is converted into the other country’s currency using PPP exchange rates instead of observed market exchange rates, the false inference will not occur)
(essentially ‘GDP PPP’ controls for the different costs of living and price levels, usually relative to the ‘United States Dollar’, thus enabling a more accurate depiction of a given nation’s ‘level of production’)
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*🌈✨ *TABLE OF CONTENTS* ✨🌷*
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🔥🔥🔥🔥🔥🔥*we won the war* 🔥🔥🔥🔥🔥🔥