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Which method is usually used for calculating the purchasing power parity by the IMF?
- a)Gross Domestic Product
- b)Net domestic product
- c)Net National Product
- d)Gross National Product
Correct answer is option 'A'. Can you explain this answer?
Verified Answer
Which method is usually used for calculating the purchasing power pari...
- GNP is the 'national income' according to which the IMF ranks the nations of the world in terms of the volumes—at purchasing power parity (PPP).
- India is ranked as the 3rd largest economy of the world (after China and the USA), while as per the nominal/ prevailing exchange rate of the rupee, India is the 7th largest economy (IMF, April 2016). Now such comparisons are done using the GDP, too.
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Which method is usually used for calculating the purchasing power pari...
Method for Calculating Purchasing Power Parity by IMF
The International Monetary Fund (IMF) uses a method called Gross Domestic Product (GDP) to calculate Purchasing Power Parity (PPP). GDP is the total value of goods and services produced within a country's borders in a specific period, usually a year. PPP is a measure of currency exchange rates that compares the prices of goods and services between countries.
Calculation of PPP using GDP involves the following steps:
1. Collect GDP data: The first step in calculating PPP is to gather GDP data for each country. This data is usually reported by national statistical agencies.
2. Convert GDP to a common currency: Since PPP is a comparison of prices between countries, GDP needs to be converted to a common currency. The most commonly used currency for this purpose is the US dollar.
3. Calculate the price level index: The price level index is a measure of the average price of goods and services in a country compared to the US. This is calculated by dividing the GDP in a particular country by the exchange rate of that country's currency to the US dollar.
4. Calculate PPP: Once the price level index has been calculated for each country, PPP can be determined by comparing the price level index of each country to the US.
Conclusion
In conclusion, the IMF uses GDP as a method to calculate PPP. This involves converting GDP data to a common currency, calculating the price level index, and comparing it to the US to determine PPP. PPP is an important measure for comparing living standards and economic development between countries.
The International Monetary Fund (IMF) uses a method called Gross Domestic Product (GDP) to calculate Purchasing Power Parity (PPP). GDP is the total value of goods and services produced within a country's borders in a specific period, usually a year. PPP is a measure of currency exchange rates that compares the prices of goods and services between countries.
Calculation of PPP using GDP involves the following steps:
1. Collect GDP data: The first step in calculating PPP is to gather GDP data for each country. This data is usually reported by national statistical agencies.
2. Convert GDP to a common currency: Since PPP is a comparison of prices between countries, GDP needs to be converted to a common currency. The most commonly used currency for this purpose is the US dollar.
3. Calculate the price level index: The price level index is a measure of the average price of goods and services in a country compared to the US. This is calculated by dividing the GDP in a particular country by the exchange rate of that country's currency to the US dollar.
4. Calculate PPP: Once the price level index has been calculated for each country, PPP can be determined by comparing the price level index of each country to the US.
Conclusion
In conclusion, the IMF uses GDP as a method to calculate PPP. This involves converting GDP data to a common currency, calculating the price level index, and comparing it to the US to determine PPP. PPP is an important measure for comparing living standards and economic development between countries.
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Which method is usually used for calculating the purchasing power pari...
GDP
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Which method is usually used for calculating the purchasing power parity by the IMF?a)Gross Domestic Productb)Net domestic productc)Net National Productd)Gross National ProductCorrect answer is option 'A'. Can you explain this answer?
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Which method is usually used for calculating the purchasing power parity by the IMF?a)Gross Domestic Productb)Net domestic productc)Net National Productd)Gross National ProductCorrect answer is option 'A'. Can you explain this answer? for UPSC 2025 is part of UPSC preparation. The Question and answers have been prepared according to the UPSC exam syllabus. Information about Which method is usually used for calculating the purchasing power parity by the IMF?a)Gross Domestic Productb)Net domestic productc)Net National Productd)Gross National ProductCorrect answer is option 'A'. Can you explain this answer? covers all topics & solutions for UPSC 2025 Exam. Find important definitions, questions, meanings, examples, exercises and tests below for Which method is usually used for calculating the purchasing power parity by the IMF?a)Gross Domestic Productb)Net domestic productc)Net National Productd)Gross National ProductCorrect answer is option 'A'. Can you explain this answer?.
Which method is usually used for calculating the purchasing power parity by the IMF?a)Gross Domestic Productb)Net domestic productc)Net National Productd)Gross National ProductCorrect answer is option 'A'. Can you explain this answer? for UPSC 2025 is part of UPSC preparation. The Question and answers have been prepared according to the UPSC exam syllabus. Information about Which method is usually used for calculating the purchasing power parity by the IMF?a)Gross Domestic Productb)Net domestic productc)Net National Productd)Gross National ProductCorrect answer is option 'A'. Can you explain this answer? covers all topics & solutions for UPSC 2025 Exam. Find important definitions, questions, meanings, examples, exercises and tests below for Which method is usually used for calculating the purchasing power parity by the IMF?a)Gross Domestic Productb)Net domestic productc)Net National Productd)Gross National ProductCorrect answer is option 'A'. Can you explain this answer?.
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