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Real purchasing power is used to measure the value of money over time and between countries.

The "purchasing power" refers to the price level and is usually employed for comparisons across countries. Suppose A and B earn 1000 Galleons. But A lives in a country where everything is half the price of the same things in B's country. Then even though they earn the same amount, A's purchasing power is double that of B. The exchange rate between the A-Galleon and B-Galleon should change to correct this discrepancy but that can take time specially if the governments interfere with currency movements.

The "real" refers to adjustment for changes in prices over time. If everything costs 10% more than in the previous year but A's income has gone up 20%, his income has effectively increased by a factor of (1+20%)/(1+10%) = 1.2/1.1 = 1.0909... or increased by 9.091%.

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Q: What does real purchasing power mean?
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