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?
[UPSC Civil Services Exam – 2019 Prelims]
(a) 1 only
(b) 2 only
(c) Both 1 and 2
(d) Neither 1 nor 2
- PPP (Purchasing Power Parity) is an economic theory that involves comparing currencies of different countries based on a standardized “basket of goods and services.”
- The PPP between two countries is a measure of the amount of one country’s currency needed to purchase a specific basket of goods and services in that country, relative to the amount of another country’s currency required to purchase a similar basket of goods and services in the other country. Therefore, statement 1 is correct.
- In terms of PPP dollars, China was the largest economy in the world in 2018, followed by the United States. India held the third position. Thus, statement 2 is incorrect.