Relative Purchase Power Parity

DEFINITION of 'Relative Purchase Power Parity'

An expansion of the purchase power parity theory, which suggests that prices in countries vary for the same product but that they differ by the same proportional rate over time. The reasons suggested for this price difference include taxes, shipping costs and differences in product quality.

BREAKING DOWN 'Relative Purchase Power Parity'

The relative purchase power parity condition suggests that countries with higher rates of inflation will have a devalued currency.

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RELATED FAQS
  1. How important a metric is PPP (purchasing power parity?)

    Find out why calculations and comparisons of the purchasing power parity (PPP) in different countries can have a real impact ... Read Answer >>
  2. What are the nations with the highest PPP (purchasing power parity) with respect ...

    Learn which nations have the highest PPP with respect to the U.S. while reviewing the differences of calculating GDP in market ... Read Answer >>
  3. Why is PPP (purchasing power parity) controversial?

    Find out why economists disagree about the conceptual validity of the theory of purchasing power parity (PPP) to describe ... Read Answer >>
  4. What is the relationship between nominal GDP and PPP (purchasing power parity)?

    Examine the relationship between final goods production, income, gross domestic product, purchasing power parity and the ... Read Answer >>
  5. What is the difference between a regressive tax and proportional tax?

    Learn about the differences between regressive, progressive and proportional taxes and how they each affect everyday finances ... Read Answer >>
  6. What economic indicators are most used when forecasting an exchange rate?

    Discover what economic indicators are most widely used to forecast a country’s exchange rate and how various factors influence ... Read Answer >>
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