Meaning & use
the purchasing power parity
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Meaning
noununcountablebusinessfinancespecialist
An economic measure that compares the value of currencies by looking at what the same basket of goods costs in different countries.
Grammar: Used with the definite article when referring to the concept: the purchasing power parity. It is not usually plural.
Patterns
- purchasing power parity between countries
- adjust for purchasing power parity
- on a purchasing power parity basis
Economists use purchasing power parity to compare living standards across countries.
The purchasing power parity between the two currencies suggests the dollar is overvalued.
When measured by purchasing power parity, the country has the largest economy in the region.
Common combinations
- purchasing power parity exchange rate
- The purchasing power parity exchange rate is different from the market rate.
- adjust for purchasing power parity
- The figures were adjusted for purchasing power parity.
- purchasing power parity basis
- The comparison is made on a purchasing power parity basis.
- purchasing power parity theory
- The purchasing power parity theory predicts long-term exchange rates.
Synonyms and how they differ
- PPP
- The abbreviation is used in formal writing after the full phrase has been introduced.
Word family
- purchasing power noun
- The amount of goods and services that can be bought with a particular amount of money.
- parity noun
- The state of being equal, especially in pay or value.
Commonly confused: the purchasing power parity or interest rate parity?
the purchasing power parity vs interest rate parity
Interest rate parity is a different economic concept about interest rates and exchange rates, not about the cost of goods.
Practice
The purchasing power parity between two countries is calculated by comparing the cost of ______.
Choose one answer.
Purchasing power parity compares the price of an identical set of goods and services in different countries, so 'the same basket of goods' is correct. The other options are not the basis of PPP.
Make it your own
Write a sentence using “the purchasing power parity”, then check it and compare it with the examples above.