PPP (Purchasing Power Parity)
An economic measure that compares currencies by how much goods and services they can buy in different countries.
What You Need to Know
PPP adjusts for the fact that $1 buys different amounts in different places. It's why $50,000 in San Francisco feels poor, but $50,000 in rural Thailand is wealthy.
The Concept: Instead of comparing raw dollar amounts, PPP asks: "How many Big Macs can you buy?"
- U.S.: $50,000 buys 10,000 Big Macs ($5 each)
- India: $50,000 buys 25,000 Big Macs ($2 each)
In PPP terms, $50,000 in India has 2.5× the purchasing power of $50,000 in the U.S.
Real-World Example:
- $75,000 salary in New York
- $40,000 salary in Bangkok
Adjusted for PPP, the Bangkok salary might offer equal or better living standards (housing, food, healthcare cost 60% less).
Why It Matters:
- Comparing international salaries (is $100k in London better than $80k in Texas?)
- Retirement planning abroad (your $1M goes further in Portugal than California)
- Understanding global wealth (China's GDP is higher than U.S. in PPP terms)
The Bottom Line: Absolute dollars matter less than what those dollars can buy. PPP reveals the real difference in living standards across countries and cities.
Sources & References
This information is sourced from authoritative government and academic institutions:
- data.oecd.org
https://data.oecd.org/conversion/purchasing-power-parities-ppp.htm
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