AI-generated practice question — model-generated for extra practice, not a previous-year CBSE board question.
PPP ensures that per capita income reflects actual purchasing power — since prices of goods differ across countries, a dollar buys different amounts in different places. PPP adjusts for this, enabling a fair comparison of living standards.
The textbook (Note 3, Table 1.6) states: "Per capita income is calculated in dollars… in a way so that every dollar would buy the same amount of goods and services in any country." Examiners expect you to mention that exchange rates don't account for price differences across countries, making PPP necessary for a meaningful comparison. One clear sentence is enough for 1 mark.