Question 82

Let's analyze each statement regarding Purchasing Power Parity (PPP):

1. Purchasing Power Parity (PPP) exchange rates are calculated by comparing the prices of the same basket of goods and services in different countries. This statement is correct. PPP is a theory that states that exchange rates between currencies are in equilibrium when their purchasing power is the same in each of the two countries. This means that a given amount of money should be able to buy the same basket of goods and services in both countries, after accounting for the exchange rate. PPP exchange rates are constructed to eliminate the differences in price levels between countries, allowing for a more accurate comparison of economic output and living standards.

2. In terms of PPP dollars, India is the sixth largest economy in the world. This statement is incorrect. As per most international economic reports (e.g., from IMF or World Bank) for recent years, India is typically ranked as the third largest economy in the world in terms of Purchasing Power Parity (PPP), after China and the United States. Its ranking has been consistently in the top three for several years, not sixth.

Therefore, only statement 1 is correct.