ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -Relative purchasing power parity (RPPP) is an economic theory that states that exchange rates and inflation rates (price levels) in two countries should equal out over time.

Detailed explanation-2: -The theory of purchasing power parity states that exchange rates between any two currencies will adjust to reflect changes in the price levels of the two countries. If one country’s price level rises relative to another’s, its currency should depreciate (the other country’s currency should appreciate).

Detailed explanation-3: -What is Purchasing Power Parity? Purchasing power parity (PPP) is a theory which states that exchange rates between currencies are in equilibrium when their purchasing power is the same in each of the two countries.

Detailed explanation-4: -The PPP formula is calculated by multiplying the cost of a particular product or service with the first currency by the price of the same goods or services in U.S. dollars.

Detailed explanation-5: -In their simplest form, PPPs are simply price relatives that show the ratio of the prices in national currencies of the same good or service in different countries. PPPs are also calculated for product groups and for each of the various levels of aggregation up to and including GDP.