Final answer:
PPP is an adjustment to GDP that reflects the difference in cost of living across countries, providing a stable basis for comparing economic output.
Step-by-step explanation:
PPP is an adjustment made to the GDP to reflect the differences in cost of living between countries. Purchasing power parity (PPP) equivalent exchange rates are used for GDP cross country comparisons, as they provide a longer run measure of the exchange rate.
The PPP exchange rate equalizes the prices of internationally traded goods across countries, making it possible to compare the economic outputs of countries on a more even basis.
Market exchange rates can be volatile and can change dramatically in a short period of time due to supply and demand; therefore, they may not accurately represent the true economic standings of different countries.