Q. Consider the following statements
- Purchasing Power Parity (PPP) exchange rates are calculated by comparing the prices of the same basket of goods and services in different countries.
- In terms of PPP dollars, India is the sixth-largest economy in the world.
Which of the statements given above is/are correct?
- 1 only
- 2 only
- Both 1 and 2
- Neither 1 nor 2
Answer: (a) 1 only
Notes:
- Purchasing Power Parity (PPP) is an economic theory that compares currencies of different countries through a similar “basket of goods and services”.
- The PPP between two countries measures the amount of one country’s currency required to purchase a basket of goods and services in the country that as compared to the amount of other country’s currency in order to purchase a similar basket of goods and services in the other country.
- In terms of PPP dollars, China is the world’s largest economy in 2018, followed by the United States and India at second and third positions respectively.
