Using exchange rates based on purchasing power parity to compare per capita incomes in developing and developed countries might lead one to conclude that people in developing countries:
A)are no worse off than if market exchange rates are used.
B)are worse off than if market exchange rates are used.
C)are better off than if market exchange rates are used.
D)do not use markets enough to make such a comparison feasible.

Question

Quizplus · Accepted Answer

Purchasing Power Parity (PPP) adjusts for differences in price levels between countries, often making per capita incomes in developing countries appear higher (or people better off) compared to using market exchange rates. This is because goods and services may be cheaper in developing countries, so their incomes have more purchasing power locally than the market exchange rate would suggest.

Using Exchange Rates Based on Purchasing Power Parity to Compare