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Relative Purchase Power Parity

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Relative Purchase Power Parity
A theory that the purchasing power of two currencies differs by the same proportional rate. This differs from the absolute form of purchasing power parity, which states that the purchasing power between two currencies is the same. However, the concepts are similar because RPPP holds that the absolute form would be true if there were no interference from taxes, quality of products, and other circumstances that change the market. One must take into account all these circumstances to calculate the proportional rate by which the purchasing power changes.


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