Growth and development

Indian Economic System(RAS) RAS Exam

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Indian Economy - Understanding the basics of Indian economic system

Consider the following statements regarding Purchasing Power Parity (PPP):

1. Its exchange rates are calculated by comparing the prices of the same basket of goods and services in different countries.

2. It relates to exchange rate.

3. In terms of PPP, India is the 6th largest economy in the world.

Which of the statements is/are incorrect ?

1 and 3 only

3 only

2 and 3 only

1 and 2 only

Statement 3 is incorrect: India is at 3rd position in the world in terms of PPP.
Supplementary notes: Purchasing Power Parity (PPP) It is a popular metric used by macroeconomic analysts that compares different countries’ currencies through a “basket of goods” approach.
It allows for economists to compare economic productivity and standards of living between countries.
It is a measurement of prices in different countries that uses the prices of speci fi c goods to compare the absolute purchasing power of the countries’ currencies.
In many cases, PPP produces an in fl ation rate that is equal to the price of the basket of goods at one location divided by the price of the basket of goods at a different location.
The PPP in fl ation and exchange rate may differ from the market exchange rate because of poverty, tariffs, and other transaction costs.
Some countries adjust their gross domestic product (GDP) fi gures to re fl ect PPP.