The concept underlying purchasing power parity is the

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Purchasing power parity (PPP) is based on the law of one price, which states that identical goods in different countries should have the same price when expressed in a common currency. PPP suggests that exchange rates should adjust to equalize the prices of identical goods and services in different countries. The Fisher effect relates to the relationship between inflation and nominal interest rates, the Bretton Woods Agreement was a fixed exchange rate system that operated from 1944 to 1971, the Big Mac Index is a way of measuring currency valuations based on the price of a Big Mac burger in different countries, and the balance of payments concept refers to the record of all international transactions undertaken by a country in a particular time period. None of these concepts directly relate to the idea behind purchasing power parity.

The Concept Underlying Purchasing Power Parity Is the