11 Mar To 17 Mar 24

Groww Digest
6 Day Course
Theme: purchasing power parity (PPP)

Mar 11 to Mar 17 2024
6 Day Course is a part of our newsletter

series, Groww Digest - all things personal
finance.
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Day 1: Monday
You will often hear this phrase — purchasing power

parity or PPP — in business news.
Especially when countries’ economies are being

compared.
PPP can tell us a lot about a country’s present: what

people spend their money on, how they live, etc.
A growing PPP can tell us where people are going

to spend money. That, and a lot of other things.
This week, let’s dig deeper and understand what

PPP is.
PPP helps us compare the productivity and

standard of living of two different countries.
It is usually measured in US dollars.
Example:
-India’s PPP = $8,400;

-China’s PPP = $21,400;
-USA’s PPP = $76,300.
Page: 2
Day 2: Tuesday
PPP is measured using the price of items and

services in each country.
These items and services are considered

essential — like the cost of milk, bread, water,
electricity, housing, clothing, etc.
The price of the same items is measured in

different countries.
The prices are then converted to US dollars. This

allows economists to compare the prices among
different countries.
PPP is calculated based on how expensive this

group of goods and services is.
Example: the price of 1 packet of bread will be

cheaper in a developing country like Brazil than
in a developed country like the USA.
So the PPP of the USA will be higher than the

PPP of Brazil.
Page: 3
Day 3: Wednesday
As we have already discussed, PPP is used to

compare the standard of living in different
countries.
You will often hear of different countries’ GDP.
This is most commonly the nominal GDP.
Many times, the nominal GDP is adjusted

using PPP for a more fair comparison.
For example, the nominal GDP of the USA is

higher than China’s.
But the GDP adjusted for PPP of China is

higher than USA’s.
Page: 4
Day 4: Thursday
PPP has a few drawbacks.
Many people argue that it is not fair to use

goods' prices — since goods are consumed
differently in different countries.
Example: one country may consume milk

heavily while another country might use fruits
more heavily.
Factors like transportation costs, taxes, and

market dynamics mean different items are
priced very differently across countries.
Example: chicken might be very cheap in

America. And it may be very expensive in
Finland. But it doesn’t matter because people
in Finland depend on fish more.
But still the price of chicken in Finland will

affect the calculation of its PPP.
Page: 5
Day 5: Friday
PPP has a few drawbacks.
As the PPP of a country increases, the spending

habits of a country also change.
People start having more money to spend on

less essential things also.
Example: when the PPP was lower, people spent

money only on buying food that is essential.
After the PPP increase, people are more
comfortable spending money eating outside
also.
Sales of vehicles and electronic gadgets increase.
Sales in fashion, tourism, education, healthcare,

luxury spending, etc shoot up.
This is why, when a country’s PPP increases,

more companies try to set up their businesses in
that country — seeing the increased spending
power.
Page: 6
Day 6: Sunday
We’ve reached the end of this week’s course

that started on Monday.
Here’s a test you should take. Get pen and

paper!
Question 1:
Which country’s PPP is higher?
-China
-India
Question 2:
PPP is calculated using:
-the inflation rate

-the price of some common items
-the price of crude oil
Page: 7
Day 6: Sunday
Question 3:
The PPP adjusted GDP of which country is
higher?
-USA
-China
Question 4:
When the PPP increases, people spend
___________ money on fashion and lifestyle.
-More
-Less
Question 5:
When the PPP increases, ___________
companies try to set up businesses in the
country.
-More
-Less
Page: 8
Day 6: Sunday
Answers:
Q1: China
Q2: the price of some common items
Q3: China
Q4: More
Q5: More
Page: 9
That’s it for this week!
Want to get Groww Digest in your email?
Click here: Get Groww Digest
See you next week!
—Groww Digest Team
Page: 10

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Groww Digest

Theme: purchasing power parity (PPP)

6 Day Course is a part of our newsletter

Want to get Groww Digest in your email?

Click here: Get Groww Digest

You will often hear this phrase — purchasing power

Especially when countries’ economies are being

PPP can tell us a lot about a country’s present: what

A growing PPP can tell us where people are going

This week, let’s dig deeper and understand what

PPP helps us compare the productivity and

It is usually measured in US dollars.

-India’s PPP = $8,400;

PPP is measured using the price of items and

These items and services are considered

The price of the same items is measured in

The prices are then converted to US dollars. This

PPP is calculated based on how expensive this

Example: the price of 1 packet of bread will be

So the PPP of the USA will be higher than the

As we have already discussed, PPP is used to

You will often hear of diﬀerent countries’ GDP.

This is most commonly the nominal GDP.

Many times, the nominal GDP is adjusted

For example, the nominal GDP of the USA is

But the GDP adjusted for PPP of China is

PPP has a few drawbacks.

Many people argue that it is not fair to use

Example: one country may consume milk

Factors like transportation costs, taxes, and

Example: chicken might be very cheap in

But still the price of chicken in Finland will

PPP has a few drawbacks.

As the PPP of a country increases, the spending

People start having more money to spend on

Example: when the PPP was lower, people spent

Sales of vehicles and electronic gadgets increase.

Sales in fashion, tourism, education, healthcare,

This is why, when a country’s PPP increases,

We’ve reached the end of this week’s course

Here’s a test you should take. Get pen and

-the inﬂation rate

Want to get Groww Digest in your email?

Click here: Get Groww Digest

See you next week!

—Groww Digest Team

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