Let us make an in-depth study of the Purchasing Power Parity (PPP). After reading this article you will learn about: 1. Subject-Matter of Purchasing Power Parity 2. Link of PPP with RER 3. Implications of PPP 4. Theory and Evidence of PPP. Subject-Matter of Purchasing Power Parity: There is a famous hypothesis called the law of one price (LOOP). It [...]
Introduction to Purchasing Power Parity Theory: The Purchasing Power Parity Theory has been popularized during the inter-war period by GAUSTAV CASSEL, the Swedish Economist. According to this theory, rates of exchange between two countries are determined by relative price level. The actual rate of exchange must be such that the same amount of purchasing power, when exchanged at that rate, [...]
Let us make in-depth study of the purchasing power parity theory and foreign exchange rate. Introduction: No country today is rich enough to have a free gold standard, not even the U.S.A. All countries have now paper currencies and these paper currencies of the various countries are not convertible into gold or other valuable things. Therefore, these days various countries [...]