Purchasing power is an economic term. As the name implies, it is the ability to buy goods and services after earning income. Purchasing power parity: it is the ratio of purchasing power of two (or more) currencies to a certain quantity of goods and services, that is, the ratio of the prices of two currencies when buying the same quantity and quality of goods. For example, if you buy a package of goods with the same quantity and quality, you can use 80 yuan RMB in China and US$ 20 in the United States. For these commodities, the purchasing power parity of RMB against USD is 4: 1. In other words, the purchasing power of 4 yuan RMB in these commodities is equal to the purchasing power of $65,438 +0. When comparing the gross domestic product, a simple method is usually adopted, that is, the official exchange rate is used to uniformly convert the currencies of various countries, but the official exchange rate can not fully reflect the parity relationship between the purchasing power of currencies of various countries, making the comparison results inaccurate. Purchasing power parity (PPP) is a weighted average of GDP calculated by collecting and comparing the price data of more than 2000 representative specifications (goods and services) in more than 50 categories in China through price surveys, based on the GDP calculated by the expenditure method, with GDP divided by the expenditure composition of more than 50 categories as the weight. It is the price ratio of different countries and currencies, is a price index, and is essentially the calculation of the real exchange rate. The basic idea of purchasing power parity is that inflation means the rise of domestic prices, which is the embodiment of the value of a country's currency in the commodity market, and the rise of prices means the decline of the value represented by the country's currency. With the close contact between domestic and foreign commodity markets, inflation makes the foreign currency price of the country's exports rise, while the local currency price of imported goods falls, and imports will increase, thus affecting the supply and demand of the foreign exchange market and leading to the decline of the country's exchange rate. Therefore, the decline in the intrinsic value of a country's currency will inevitably lead to the decline in its external value. Purchasing power parity theory is a representative theory to explain this mechanism.

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