Research Paper on:
PURCHASING POWER PARITY

Unformatted Sample Text from the Research Paper:
PPP as its sometimes referred to, is the theory estimating the amount of adjustment needed on a particular exchange rate between countries for the exchange to be equal to each  currencys purchasing power (Purchasing Power Parity - PPP, 2009). In other words, an exchange rate needs to be adjusted so the same good in two different countries has the same  price when expressed in the exact same currency (Purchasing Power Parity - PPP, 2009). For example, if a chocolate bar in the United States costs a dollar, that exact same  bar in Canada would cost $1.50, if the exchange rate between Canada and the United States is $1.50 (Purchasing Power Parity - PPP, 2009). This is a fairly simple way  to figure out a rather complicated system like the foreign currency exchange. How would something like this impact trade? Moffat (2009)  uses an example of Mexican pesos and US dollars to explain this. He points out, in his example, that one US dollar sells for ten pesos on the exchange rate  market. In the United States, baseball bats would sell for $40 and in Mexico theyd sell for 150 pesos (Moffat, 2009). Because 1 USD = 10 MXN, the bat costs  $40 in the U.S. But in Mexico, it costs only $15 USD (Moffat, 2009). Under these circumstances, consumers who are able to do so might be better off traveling to  Mexico to buy bats (Moffat, 2009). Moffat goes on to explain that in this situation, three things could happen. First with American  consumers wanting Mexican pesos to buy baseball bats in Mexico, theyll exchange their dollars for pesos, causing the peso to become more valuable relative to the dollar (Moffat, 2009). Second,