Purchasing Power Parity in International Comparisons

The lecture explores the international dimension of economics, focusing on GDP comparisons across countries. It introduces the concept of purchasing power parity (PPP) as a method to convert GDP into a common currency, allowing for fairer comparisons. The lecture highlights the differences in GDP per capita when using market rates versus PPP, emphasizing the importance of PPP in understanding the true economic standing of countries. The lecture concludes with a call to apply the learned concepts in assessments.

Why is it necessary to convert GDP figures to a common currency basis when comparing international economies?

• To simplify the calculation process

• To make accurate international comparisons

• To adjust for population size

• To account for inflation differences

What factor significantly affects GDP per capita comparisons between countries like China, India, and the UK?

• Natural resources

• Government policies

• Population size differences

• Exchange rate fluctuations

What is the primary purpose of using purchasing power parity (PPP) in economic comparisons?

• To ensure fair trade practices

• To equalize currency values

• To compare the cost of living

• To adjust for inflation

How does purchasing power parity (PPP) differ from market exchange rates in economic comparisons?

• PPP uses a fixed exchange rate

• PPP ignores currency fluctuations

• PPP is based on historical data

• PPP considers relative price levels

What happens to GDP per capita figures when adjusted using PPP for countries like China and India?

• They decrease significantly

• They remain unchanged

• They increase significantly

• They become negative

How does the purchasing power of a dollar in China compare to that in the UK when using PPP?

• It is lower in China

• It fluctuates frequently

• It is higher in China

• It is the same in both countries

Why is it important to use PPP for comparing the purchasing power of citizens in different countries?

• To provide a fair comparison

• To adjust for economic growth

• To ensure currency stability

• To promote international trade