ostovoimapariteetilla

Ostovoimapariteetti, often abbreviated as PPP, is an economic theory that determines the amount of one currency that is needed to purchase the same goods and services as another currency could buy in its home country. Essentially, it's a way to compare the purchasing power of different currencies. The theory suggests that in the long run, exchange rates should adjust to equalize the prices of a basket of identical goods and services in different countries. This concept is particularly useful for comparing economic productivity and living standards across nations, as it accounts for differences in the cost of living.

For example, if a basket of goods costs $100 in the United States and the same basket costs 2000 Indian Rupees in India, the PPP exchange rate would be 200 Rupees per US dollar. This differs from the market exchange rate, which is determined by the supply and demand for currencies. PPP is not a perfect predictor of short-term exchange rate movements, as many factors influence them, including interest rates, inflation, and capital flows. However, it provides a valuable benchmark for understanding long-term currency valuation and for making cross-country economic comparisons. It is frequently used by international organizations like the World Bank and the International Monetary Fund.