Explanation:

• Purchasing Power Parity is a way of measuring economic variables in different countries so that irrelevant exchange rate variations do not distort comparisons.
• It 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 the exchange rate between two countries should equal the ratio of the two countries’ price level of a fixed basket of goods and services.
• Therefore, statement 1 is correct.
• On the PPP basis, China is the world’s largest economy in 2018, followed by United States at 2^nd and India at 3^rd position.