# Price level and purchasing power of currency(PPP)

This could be a silly question, but I'm a bit confused with this concept.

Don't we say usually the purchasing power(or value) of currency(or money) is low when the price level is high in one country(i.e. negative relationship)?

However, in international economics, it looks like a country's price level has postive relation to purchasing power of it's own currency.

For example, the prices of United States are higher than that of Korea and at the same time, the purchasing power of dollar is higher than Korean won.

How can I understand this kind of contradiction?

• PPP is not purchasing power of currency it is purchasing power parity. It is a number that gives you an ‘exchange rate’ at which two currencies (let’s say USD and EUR) are at a parity (when they are equal to each other). You can use it for international comparison of purchasing power but it’s not an absolute metric
– 1muflon1
May 14 '21 at 16:19

You also need to consider the currency A to currency B exchange rate, usually denoted by $$E_{B/A}$$. Then purchasing power/real exchange rate is calculated by
$$\frac{P_A}{P_B} \cdot E_{B/A} ,$$ where $$P_A$$ and $$P_B$$ are price levels in countries A and B respectively. If this is larger than 1, then using country A's currency one could buy more goods in country B than in country A, while if it is smaller than 1 then the reverse is true.