Purchasing power parity (PPP) is used to?

Purchasing power parity (PPP) is a crucial economic theory used to determine the relative value of different currencies based on the cost of living and the inflation rates in different countries. It posits that in the absence of transportation costs and other trade barriers, identical goods should have the same price when expressed in a common currency. This means that if you were to compare the cost of a basket of goods in one country to the cost of the same basket in another country, the differences in prices would help establish an exchange rate that reflects the actual purchasing power of each currency.

By utilizing this concept, economists and businesses can better understand the value of currencies in a more practical sense compared to nominal exchange rates, which might be influenced by more volatile factors. In this way, PPP serves not only to assess cost of living differences but also to provide clearer insights for those engaging in international trade or investment decisions.

The other options mentioned do not align with the primary use of PPP. While national income calculations, debt assessments, and international trade agreements are vital aspects of global economics, they operate within different frameworks and do not leverage the direct price comparison focus that characterizes purchasing power parity.