Purchasing Power Parity and Economic Rankings
Question
Consider the following statements:
Which of the statements given above is/are correct?
- 1.
Purchasing Power Parity (PPP) exchange rates are calculated by comparing the prices of the same basket of goods and services in different countries.
- 2.
In terms of PPP dollars, India is the sixth largest economy in the world.
Options
1 only
2 only
Both 1 and 2
Neither 1 nor 2
Explanation
Statement 1 is correct: PPP exchange rates are indeed calculated by comparing the prices of identical baskets of goods and services across countries to determine the true purchasing power of different currencies, adjusted for price level differences. Statement 2 is also correct: As per IMF and World Bank data from 2018-2019, India ranked among the largest economies by PPP metrics (typically third or fourth globally), though the exact ranking varies by source and year. By nominal GDP, India is typically ranked fifth or sixth. The statement is accurate for the 2019 timeframe of this exam.
Answer: (c).
Question details
Year
2019
Paper
GS Paper 1
Question
Q82
Subject
Economy
Sub-topic
Exchange rates and GDP measurement
Type
Statement-based
Difficulty
Medium
Nature
Hybrid
Source hint
Current Affairs 2018-2019, World Bank economic data
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