Question

Using economic theory "Purchasing power parity (PPP)", please explain the theory effect on Merchandise trade currency and Gross National Product. Also, provide a graph reference. Thanks

Answer 1

Purchasing power parity comprises of the adjustments that need to be made so that currencies exchange rate become equal to the purchasing power of the countries.Using PPP is an alternative to using market exchange rates and PPP is calculated in countries as per standard of living and purchasing power of the people in that country.

The currencies are forecasted to fall with high inflation as the purchasing power reduces relative to different other countries

The merchandise trade balance measures the difference between imports and exports of goods. ... Alongside the merchandise data, exports and imports of services are also provided. The statistics, which are not seasonally adjusted, are reported in both local currency and U.S. dollars, the latter being the main market focus.

Gross national product (GNP) is an estimate of total value of all the final products and services produced in a given period by the means of production owned by a country's residents. GNP is commonly calculated by taking the sum of personal consumption expenditures, private domestic investment, government expenditure, net exports and any income earned by residents from overseas investments, minus income earned within the domestic economy by foreign residents. Net exports represent the difference between what a country exports minus any imports of goods and services.

GNP is related to another important economic measure called gross domestic product (GDP), which takes into account all output produced within a country's borders regardless of who owns the means of production. GNP starts with GDP, adds residents' investment income from overseas investments, and subtracts foreign residents' investment income earned within a country