One way by which the World Bank converts gross national income (GNI) figures to dollars is to take the GNI in a local currency and convert using the exchange rate, averaged over a three-year period in order to smooth out the effects of currency fluctuations. Which of the following is a shortcoming of this method for international comparisons of standards of living?
A) Currency exchange rates may fluctuate drastically from year-to-year.
B) A country could have a relatively high standard of living but, for a variety of reasons, a low exchange rate.
C) This method cannot be applied to countries that have fixed exchange rates.
D) The method does not take into account trade conducted on the basis of barter.

Question

Quizplus · Accepted Answer

The method of converting GNI to dollars using the exchange rate over a three-year period may not accurately reflect the current exchange rate, which could lead to an inaccurate comparison of standards of living between countries. Additionally, a country with a high standard of living may have a low exchange rate due to a variety of reasons, such as government policies or market factors. Therefore, this method is not always a reliable indicator of a country's standard of living.

One Way by Which the World Bank Converts Gross National