Key Aspects of PPP:

1. Concept: According to PPP, in the absence of transportation costs and other barriers, identical goods and services should cost the same in different countries when priced in a common currency. In other words, a given amount of money should buy the same quantity of goods and services in any country, after converting between currencies.

   For example, if a basket of goods costs $100 in the United States and the same basket costs £75 in the UK, the PPP exchange rate would be 1 USD = 0.75 GBP, assuming no distortions like taxes or transportation costs.

2. PPP Exchange Rate: The PPP exchange rate is the exchange rate at which the same goods or services would cost the same in two different countries. It helps to compare different countries' economic output (GDP) in a common currency, often the US dollar.
3. Adjustment for Living Standards: By adjusting for differences in price levels, PPP allows economists to make better comparisons of living standards and real output across countries. For instance, even if two countries have the same nominal GDP, their PPP-adjusted GDP might differ significantly if one country has much lower prices for goods and services.