Learning Path
Question & Answer1
Understand Question2
Review Options3
Learn Explanation4
Explore TopicChoose the Best Answer
A
It allows for a direct comparison of nominal GDP between countries.
B
It adjusts income levels to reflect the cost of living, making GDP per capita more comparable.
C
It solely focuses on the inflation rates of each country.
D
It has no effect on GDP comparisons between countries.
Understanding the Answer
Let's break down why this is correct
Answer
Purchasing power parity (PPP) helps us compare the economic well-being of people in different countries by taking into account how much things cost in each country. When two countries have different economic growth rates, simply looking at their GDP might not give us the full picture. For example, if Country A grows quickly but has high prices, and Country B grows slowly but has lower prices, using PPP allows us to adjust their GDP figures to reflect what people can actually buy. This means that we can see if people in Country B might be better off, even if their GDP is lower. In this way, PPP gives us a clearer understanding of how real living standards compare across countries.
Detailed Explanation
PPP helps us compare how much people can actually buy in different countries. Other options are incorrect because This answer suggests we can compare nominal GDP directly, but that ignores price differences; Focusing only on inflation misses the bigger picture.
Key Concepts
Economic Growth
Purchasing Power Parity
Topic
Calculating Real GDP per Capita
Difficulty
medium level question
Cognitive Level
understand
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