Exchange Rates and PPP

This lecture discusses the concept of purchasing power parity (PPP) in relation to exchange rates, explaining how differences in production costs and willingness to pay affect GDP calculations. It delves into the implications of using market exchange rates versus PPP exchange rates, highlighting how the latter provides a more accurate comparison of GDP per capita across countries. The lecture also explores the impact of currency strength on international trade, emphasizing the role of speculation in influencing exchange rates and the importance of market equilibrium in determining fair currency values.