Decoding the PPP Theory in Finance

This blog shall act as a handbook for your assignment and examination purpose. Of course, with a sprinkle of spices!

About PPP Theory

Purchasing Power Parity (PPP) is a theory in economic finance which states that the exchange rate between different currencies can become the basis of comparing two economies with the law of basket known as the “basket of goods”.

Basket of Goods

Whenever you encounter a PPP Theory essay, you would be required to list down this law or one of its implications via an example. For that, you must know what it means because it does not mean comparing two baskets filled with fruits (poor joke enough?). The law states that two economies are in the state of equilibrium when the price of a basket of the same goods is priced exactly the same.

The economic and finance assignment help experts at Online Assignment Expert say that it is important to understand this at the grass root level. For example, if the baskets have 5 oranges and 4 apples, the price of one singular apple in basket one may not be the same as the other in Basket 2. Similarly for oranges. However, even after that, it is likely that the prices of the two baskets still match! The reason behind that is, if the price of an orange is equally more than apple in basket one and the price of an apple is equally more than orange in basket 2, the resultant price comes out to be the same.

Our essay writing help experts hope they were clear to you for this is an integral part of any PPP Theory assignment question you are looking for PPP Theory assignment answers for.

S=P1/P2

The heading is the formula for calculating the ratio of currency 1 to currency 2. When the ratio comes out to be 1:1, the economies are said to be in equilibrium.

Application of PPP

The PPP theory gives us a tool to evaluate two economies and do that while holding some value at the same time. In lieu of the above, it is very important to consider a wide variety of goods and services. However, this is, indeed, one of the complex theories. Therefore, whenever attempting to write your PPP Theory essay answer for any question that you may be exposed to, it is important to consult an expert like the ones at Online Assignment Expert.

PPP Theory Essay Question

Question: Write an essay on how the PPP Theory acts as an alternative to international exchange rates.

Would you be able to answer the above question without spending hours researching on the topic you need to write a 2000-words essay on? Our point is, why spend time on something that would take you much longer than someone who expertise in what you are attempting to undertake?

PPP Theory Essay Solution Tips

The Introduction

To tell the reader that you are well informed with all the technicalities that exist. Our experts say that the real power of purchasing in a currency is defined as the quantity of the currency required to buy a specific quantity of goods or quality if services. This could make up the introduction of your essay and then be included in the thesis statement as well.

Read this blog on how to go about an essay introduction and score what you have always fantasised!

The Body

When you are one with the introduction part, what comes next is the body. In the body, you must comment upon the fact how purchasing power is determined to be in the countries you are asked to contrast between. What your body could include further shall be the fact that PPP brings the purchasing power of two economies to the same level when by accounting for factors like inflation rates and the standards of living.

The Conclusion

Be it any finance essay solution you attempt to submit with your assessor, it is important that you do not mention something new that you did not state previously in the introduction or body.

The Relationship between GDP and PPP

We are not going to write a sub-blog on what GDP refers to. You must know it. If you do not, boy, you must call our economics or specialised PPP Theory assignment experts.

So, coming back to the relationship between them, one way to look at it is by considering the fact that PPP and GDP, together denote the total power of purchasing of Japan. If Japan were to make the same quantity of purchase in the markets of the United States of America, it would only be possible when all the YEN has been exchanged for the DOLLARS.

Once the two economies are being looked at from the same vantage point that is currency, the comparison shall make sense.

Factors responsible for the Downfall of PPP

PPP’s application may vary when it comes to a comparison between long term and short term. A newspaper, Burgernomics (2003), cited factors which were responsible for why PPP, may not align with the actual reality.

The factors are -

- Transport costs

- Taxes

- Government Intervention

- Non-Traded Services

- Market Competition

- Inflation

Bottom-line of PPP Theory Assignments

It is important to note that Purchase Power Parity allows a person to contrast and compare the prices and standards of currencies. So the point is, when travelling via an airline, do not buy a burger during your halt on a transit airport. You would not ever be satisfied with what you get for what you pay. You would get a pizza at the price of Turkey!

Well, this is not a real-life example experienced by our experts. We saved them for the essays we write. For more information on how to go about a particular PPP Theory essay answer, you are always welcome to contact us.

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