purchasing power parity
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Purchasing power parity is an economic theory saying that exchange rates between two currencies should reflect how much each currency can actually buy—so if a dollar buys more stuff than a euro, the dollar should be worth more in exchange. It matters because it helps economists understand whether currencies are fairly valued and predict how exchange rates might change over time.
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Article
Purchasing power parity (PPP) is a measure of the price of specific goods in different countries and is used to compare the absolute purchasing power of the countries' currencies. PPP is effectively the ratio of the price of a market basket at one location divided by the price of the basket of goods at a different location. The PPP inflation and exchange rate may differ from the market exchange rate because of tariffs and other transaction costs.
The purchasing power parity indicator can be used to compare economies regarding their gross domestic product (GDP), labour productivity and actual individual consumption, and in some cases to analyse price convergence and to compare the cost of living between places. The calculation of the PPP, according to the OECD, is made through a basket of goods that contains a "final product list [that] covers around 3,000 consumer goods and services, 30 occupations in government, 200 types of equipment goods and about 15 construction projects". GDP PPP by country (territory) in 2022 (IMF)