The purchasing power parity (PPP) theory says that in the long run, the exchange rate between two currencies should move toward the in each country of an identical basket of internationally traded goods.

Equalizing , Cost

Explanation: Purchasing power Parity is a macroeconomic analysis which measures the exchange rate of two different currencies that would soon be in equilibrium by comparing the productivity and standards of living between the countries using an approach called basket of goods to measure prices in different areas using a particular good to compare the purchasing power between currencies of the different countries.

Formula to PPP

=cost of a particular product or services X first currency by the cost of the same goods or services in the other currency. Given by

S=P1/P2

S = Exchange Rate

P1 = Cost of goods in Currency 1

P2 = Cost of goods in Currency 2

Equality rate; price/cost.

Explanation:

In economics, When we talk about the term called purchasing power we mean the value of the currency that is to say the amount of the goods and product a particular currency can buy.

The concept Purchasing power parity (PPP) is being used to compare the value of different currency in terms of what they can buy.

The theory behind Purchasing power parity (PPP) as it is given in the question above is that ; '' in the long run, the exchange rate between two currencies should move toward the EQUALIZING RATE of the PRICES/COST in each country of an identical basket of internationally traded goods''.

NOTE: The capitalized words are the missing words in the question above.

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