Purchasing Power Parity (PPP) is an economic theory that compares the relative value of different currencies. It is based on the idea that in the absence of transportation costs and other barriers, identical goods or services should have the same price in different countries when measured in a common currency. PPP is a crucial concept in international economics, as it allows for a more accurate comparison of economic data, such as GDP, across countries with different currencies and living costs. The Implied PPP Conversion Rate represents the amount of a country’s national currency needed to purchase the same quantity of goods and services as one international dollar (also known as a PPP dollar). This rate is derived from the actual prices of a standard basket of goods and services in different countries and is used to adjust nominal values into comparable international figures. The Implied PPP Conversion Rate is calculated by comparing the price of a specific basket of goods and services in different countries to the price of the same basket in the United States, expressed in U.S. dollars. Implied PPP Conversion Rate = (Price of Basket in National Currency / Price of Basket in USD).
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