Purchasing Power Parity (PPP)
Interpretations of Purchasing Power Parity
Absolute Form of PPP: without international barriers, consumers shift their demand to wherever prices are lower. Prices of the same basket of products in two different countries should be equal when measured in common currency.
Relative Form of PPP: Due to market imperfections, prices of the same basket of products in different countries will not necessarily be the same, but the rate of change in prices should be similar when measured in common currency