When income comparisons are made using purchasing power parity rather than market exchange rates, the gap in per capita income between developed and developing countries becomes smaller.

Question

Quizplus · Accepted Answer

Purchasing power parity (PPP) takes into account the relative cost of living and the inflation rates of the countries, thus providing a more accurate comparison of economic output and living standards. This method often shows a smaller income disparity between developed and developing countries compared to comparisons made using market exchange rates, which can be influenced by currency fluctuations and do not reflect domestic purchasing power.

When Income Comparisons Are Made Using Purchasing Power Parity Rather