Definition for : Purchasing Power Parity
"Purchasing Power Parity" (or "PPP") designates a theory in relation to the determination of currency exchange rates. According to this theory, the currency exchange rates must reflect the exact conversion (Parity) between two countries based on the price at which the same good is sold in different countries. For instance, the "McDo PPP" uses the price at which a "Big Mac" burger (which uses the same ingredients everywhere) is sold in the various capitals across the world.
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