Comparing Indonesia's and Sweden's GDP Per Capita Using Market vs. PPP Rates (2022)

Consider the following economic data for two hypothetical countries:

• Country A: GDP per capita (at market exchange rates) = $50,000; GDP per capita (adjusted for purchasing power) = $52,000.
• Country B: GDP per capita (at market exchange rates) = $5,000; GDP per capita (adjusted for purchasing power) = $12,000.

Based on this data, which of the following statements provides the most accurate analysis of the income gap between these two countries?

When comparing the GDP per capita of a high-income country and a low-income country, converting the low-income country's GDP to the high-income country's currency using a purchasing power parity (PPP) adjustment will almost always result in a larger reported income gap than if a market exchange rate were used.

Evaluating International Income Data

Explaining Income Gap Adjustments

Critique of International Income Comparisons

Match each method of comparing international income with its characteristic effect on the perceived income gap between a high-income and a low-income country.

When comparing the GDP per capita of a wealthy nation with that of a less-developed nation, the income gap appears smaller when using a purchasing power adjustment instead of a market exchange rate. This is primarily because many non-traded goods and services are significantly ________ in the less-developed nation.

Resource Allocation for an International NGO

An economist is comparing the per capita income of a high-income country with that of a low-income country. The initial comparison, based on market exchange rates, shows a large disparity. If the economist recalculates the comparison using a purchasing power adjustment, what is the most likely outcome?

International Salary Strategy