The internal purchasing power of a currency is the amount of goods and services that can be purchased with a unit of that currency (one dollar, one yen, etc). This represents the amount of goods that corresponds to the purchasing power of one currency unit. In calculation, the internal purchasing power is the reciprocal of the local price level in the country issuing that currency. It typically measured as consumption bundles per local currency (per dollar, per yen, etc).
For a dollar,
Internal PP= 1/ P(t, $), where:
P(t, $) is the price level in dollar at time t.
For a yen,
Internal PP= 1/P(t,¥), where:
P(t, ¥) is the price level in yen at time t.
Suppose, for example, that the price level in Japan is ¥140,000 for the average consumption bundle, what would be the purchasing power of ¥10 million? The purchasing power per one yen is the reciprocal of price level 1/140,000, therefore:
That makes 71.42 consumption bundles which can be purchased by ¥10 million.
