Andrew Johnson, Chapter 11, Question #3

Purchasing Power Parity is an fair concept of currency comparison and are very influential to the global economy. Being that currency is worth only how much people trust it to be worth and that currency's value is determined by the quantity of currency associated with goods, global currencies must have a system of comparison in order to maintain trust/value of goods and services. However, PPP isn't always able to assure fair exchange between currencies. Due to certain goods (such as nontradable goods) not being able to be compared appropriately by PPP, the value of currencies can be 'undervalued' or 'overvalued', causing a perception of depreciation to arise within the currency, resulting in a weakening of trust for a currency, which may induce a feeling of recession for such currency dependent country's if not adjusted accordingly.