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- Purchasing power parity (PPP) is a theory that compares the cost of a good or a basket of goods across different countries12. PPP is based on the law of one price, which states that identical goods will have the same price1. The formula for PPP can be expressed as follows12:S = P1/P2Where,S = Exchange rate of currency 1 to currency 2P1 = Cost of a good or a basket of goods in currency 1P2 = Cost of the same good or basket of goods in currency 2Learn more:✕This summary was generated using AI based on multiple online sources. To view the original source information, use the "Learn more" links.PPP is based on the law of one price, which states that identical goods will have the same price. The purchasing power parity formula can be expressed as follows: S = P1/P2 Where, S = Exchange rate of currency 1 to currency 2 P1 = Cost of a good in currency 1 P2 = Cost of the same good in currency 2byjus.com/commerce/purchasing-power-parity-for…
The formula for purchasing power parity of country 1 w.r.t. country 2 can be simply derived by dividing the cost of a particular good basket (say good X) in country 1 in currency 1 by the cost of the same good in country 2 in currency 2. A popular practice is to calculate the purchasing power parity of a country w.r.t.
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