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Purchasing Power Parity (PPP) Index is an economic measure used to compare the value of currencies and the cost of living between countries. Definition Purchasing Power Parity (PPP) states that, in the long run, the same basket of goods and services should cost the same in different countries when prices are expressed in a common currency. Formula PPP = \frac{\text{Price of a basket of goods in Country A}}{\text{Price of the same basket in Country B}} Example If a basket of goods costs: ₦150,000 in Nigeria $100 in the United States Then: PPP\ Exchange\ Rate = \frac{₦150,000}{\$100} = ₦1,500/\$ This means ₦1,500 in Nigeria has the same purchasing power as $1 in the United States. Uses of PPP 1. Comparing living standards across countries. 2. Measuring real income and economic welfare. 3. Comparing GDP between countries more accurately. 4. Determining whether a currency is overvalued or undervalued. PPP Index Examples Popular PPP-based indices include: Big Mac Index World Bank PPP comparisons International Monetary Fund PPP-adjusted GDP statistics In simple terms, the PPP Index shows how much goods and services people can buy with their income in different countries, making international comparisons more realistic than using market exchange rates alone.