Put another way, if a box of cereal costs $3 in Country A and $4 in Country B, then the exchange rate from currency A to Currency B should be 3:4 (or 0.75), assuming absolute purchasing power parity.

Purchasing power parity (PPP) is a concept found in macroeconomics. Using PPP, economists seek to calculate the cost of items across various different countries and currencies.

Purchasing power refers to the amount of goods and services a person or entity can buy with a given amount of money. It fluctuates over time due to inflation, deflation and changes in income ...

The other approach uses the purchasing power parity (PPP) exchange rate—the rate at which the currency of one country would have to be converted into that of another country to buy the same amount of ...