Purchasing power parity: Difference between revisions

[[Image:PPP2003.svg|thumb|400px|right|Purchasing Power Parity (PPP) of Gross Domestic Product for the countries of the world as of 2003. The economy of the United States is used as a reference, so that country is set at 100. Bermuda has the highest index value, 154, thus goods sold in Bermuda are 54% more expensive than in the United States.]]

The '''purchasing power parity''' ('''PPP''') theory uses the long-term equilibrium [[exchange rate]] of two currencies to equalize their [[purchasing power]]. Developed by [[Gustav Cassel]] in 1918,<ref>Gustav Cassel, "Abnormal Deviations in International Exchanges," in ''Economic Journal'', (December, 1918), 413-415</ref> it is based on the [[law of one price]]: the theory states that, in ideally efficient markets, identical goods should have only one price.