purchasing power (solvency) is one of the most important economic indicators.It is inversely proportional to the amount of money needed for the purchase of various goods and services.In other words, the purchasing power shows how much the average consumer can buy a certain amount of money for goods and services at the current level of prices.
Purchasing Power Parity is a relationship between two or more units of money of different currencies, which reflects their purchasing power in relation to a fixed list of goods and services.According to the theory, a certain amount of funds translated at the current exchange rate in different currencies in different countries of the world can buy the same basket of goods, in the absence of transport limitations and costs.
For example, if the same list of products worth 1,000 rubles.in Russia and $ 70 in the US, the purchasing power parity would have a ratio of 1000/70 = 14.29 rubles.$ 1.The concept of formation of exchange rates was adopted in the 19th century.According to this principle, the change in the exchange rate leads to an automatic change in commodity prices in the same proportion.However, on the basis of purchasing power parity real exchange rate of the money can be calculated only provisionally, because the more there are many factors affecting it.
purchasing power reflects the maximum amount of goods and paid services, which the average consumer when income levels have the opportunity to purchase for available funds at the current price level.This indicator is directly dependent on the income share of the population that is willing and able to spend on the purchase.
to determine changes in the volume of the commodity that the consumer can buy the same amount of money in the current year with respect to the test year, the index is used of purchasing power.It shows the relation between the nominal and the real wages of the population, and is an inverse indicator of the index of commodity prices.The purchasing power of money = 1 / Price Index.This formula allows you to quickly and easily determine the level of purchasing power and shows that it depends on the level of well-being and security of the individual consumer, and the total population.
when purchasing power is greatly increased, it leads to deflation, and there is a trade deficit of the country.In this situation, to balance performance, manufacturers must either increase the amount of commodity production, or to raise prices for their products.
When purchasing power falls, it leads to inflation and a negative impact on the economy as a separate state and around the world.In the future, this trend could lead to a complete devaluation of the national currency.Also, this is not insured, and the US dollar, which is the world currency.If this happens, the economy will suffer almost all countries of the world, as almost all the processes in the global financial and economic sphere are tied to the US dollar.
