Q1. [1] medium exam-ready
When per capita income of a country is compared across nations, the incomes are measured in US dollars using Purchasing Power Parity (PPP). The main reason for doing so is:
Options:
(A) The US dollar is the strongest currency in the world
(B) So that every dollar can buy the same amount of goods and services in any country, making comparisons meaningful
(C) PPP removes the effect of population differences between countries
(D) The World Bank operates in US dollars only
- A The US dollar is the strongest currency in the world
- B So that every dollar can buy the same amount of goods and services in any country, making comparisons meaningful
- C PPP removes the effect of population differences between countries
- D The World Bank operates in US dollars only
Generated by claude-sonnet-4-6 · 2026-06-26 13:20 · grounding rag
Model Answer
(B) So that every dollar can buy the same amount of goods and services in any country, making comparisons meaningful.
Explanation
The textbook (Table 1.6, Note 3) explicitly states: "Per Capita Income is calculated in dollars for all countries so that it can be compared. It is also done in a way so that every dollar would buy the same amount of goods and services in any country." This is the definition and purpose of PPP — it ensures real purchasing power is equal across countries, making income comparisons valid. Options A, C, and D are factually incorrect as per the chapter.