alleryPurchasing Power Parity (PPP) is used to
Acalculate income tax
Bfix exchange rates by law
Ccompute the inflation rate
Dcompare income across countries adjusting for cost-of-living differences
Answer & Solution
Correct answer: D. compare income across countries adjusting for cost-of-living differences
1. PPP-adjusted income converts incomes into a common unit reflecting domestic purchasing power.
2. Used by the World Bank for cross-country comparison of GNI per capita.
3. It corrects raw exchange-rate-based comparisons.
_Source: syllabus Understanding Economic Development, Ch 1 "Development"_
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