Q82. 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?
(a) 1 only
(b) 2 only
(c) Both 1 and 2
(d) Neither 1 nor 2
Answer: (a)
- The basis for Purchasing Power Parity (PPP) is the “law of one price”.
- Statement 1 is correct: PPPs measure the total amount of goods and services that a single unit of a country’s currency can buy in another country. The PPP between countries A and B measures the amount of country A’s currency required to purchase a basket of goods and services in country A as compared to the amount of country B’s currency to purchase a similar basket of goods and services in country B.
- Statement 2 is not correct: In terms of PPP dollars, India is the third largest economy in the world. (Fourth largest if the European Union is also considered as a common economic space for ranking purposes).
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