The PPP is calculated by comparing the price of a basket of comparable goods and services in different countries.
It allows you to compare the price of household items in different countries.
To make comparison between countries meaningful you need a way of comparing exchange rates between countries which compares the cost of living in those countries.
If you are given a question in your upcoming exams relating to the PPP here is a way of demonstrating your understanding:
Let’s say a basket of the same goods and services is worth $100 in the US and the same basket of goods is worth €130 in Cyprus.
