PPP, or Purchasing Power Parity, is an economic theory that compares different countries' currencies through a "basket of goods" approach. It suggests that in the long run, exchange rates should adjust so that identical goods cost the same in different countries when expressed in a common currency. This concept helps economists understand the relative value of currencies and the cost of living in various nations. The PPP theory is often used to assess whether a currency is undervalued or overvalued. For example, if a Big Mac costs $5 in the United States and the same burger costs 20 Chinese Yuan in China, the PPP exchange rate would suggest that the Yuan is undervalued if the actual exchange rate is significantly different.