Consider the following statements: 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. Which of the statement given above is/are correct?
- A. 1 only
- B. 2 only
- C. Both 1 and 2
- D. Neither 1 nor 2
Answer: A
Explanation
In purchasing power parity (PPP) exchange rate — the rate at which the currency of one country would have to be converted into that of another country to buy the same amount of goods and services in each country. For example-If, a burger is selling in India for Rs100 and in New York for $2, this would imply a PPP exchange rate of 1 dollar to Rs 50. Hence, statement 1 is correct. On a PPP basis, China is the world’s largest economy in 2018. The total wealth of China is estimated at 25.3 trillion international dollar. China is followed by the United States with figure 19.4 trillion. India is the third largest economy, in terms of PPP dollars. Hence, statement 2 is not correct.