Скачать или смотреть Purchasing Power Parity (PPP) Explained | Absolute vs Relative PPP | UGC NET Economics 2025

Economics Day 29 – UGC NET Dec 2025
Today’s topic: Purchasing Power Parity (PPP) — a core concept from International Economics, repeatedly asked in PYQs, numerical questions, and conceptual MCQs.

📌 Absolute PPP

States that:
Price of a basket of goods in two countries should be equal when expressed in a common currency.

Formula:
E = P / P*
• E = Exchange rate
• P = Domestic price level
• P* = Foreign price level

📌 Relative PPP

Exchange rate changes are driven by inflation differences between countries.

Formula:
ΔE / E = π – π*
• π = Inflation in domestic country
• π* = Inflation in foreign country

Used to predict future exchange rate movements.

PPP is crucial for:
✔ Exchange rate theory
✔ Macroeconomics
✔ International parity conditions
✔ Case-based & numerical UGC NET questions

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