What is Purchasing power parity?
There are two ways to measure [[GDP]] (total income of a country) of different countries and compare them. One way, called GDP at [[exchange rate]], is when the currencies of all countries are converted into USD (United States Dollar). The second way is GDP (PPP) or GDP at '''purchasing power parity''' ('''PPP''').<ref>{{Cite book|title=The Cultural Landscape An Introduction to Human Geography|last=|first=|publisher=James M. Rubenstein|year=2017|id=APGEO7|url=https://www.pearsonmylabandmastering.com/northamerica/masteringgeography/|pages=209–334|language=English|url-access=registration}}</ref> == PPP == === Uses === Purchasing power parity (PPP) is measured by finding the values (in USD) of a [[Market basket|basket of consumer goods]] that are present in each country (such as pineapple juice, pencils, etc.). If that basket costs $100 in the US and $200 in the [[United Kingdom]], then the purchasing power parity exchange rate is 1:2. === Examples === For example, suppose that [[Japan]] has a higher GDP per capita (US$18) than the [[US]] (US$16). This means that the average Japanese person makes $2 more than the average American. However, this does not necessarily imply that the Japanese are more affluent. Suppose that one gallon of orange juice costs $6 in Japan, and $2 in the US, i.e. $6 buys a good in Japan that can be purchased in the US for $2. 1 gallon of orange juice is taken as a reference good in this example. Simply, 1 gallon of orange juice can be bought in Japan, versus 3 gallons in America, with an equivalent amount of money. We can calculate a PPP index for Japan vs. the US equal to 1/3. According to orange juice prices, Americans have stronger purchasing power, or are able to buy more value with their money. The US has a PPP-adjusted GDP of $16, which has not changed since it is the reference currency. Japan's GDP, however, is only $6 when adjusted for PPP. This is calculated by multiplying Japan's unadjusted GDP by the PPP index. In reality, a much wider range of goods that includes much more tha