Question

Suppose you are comparing the income per capita in the United States and Ghana. You try two approaches. In the first a Ghanaian oedi. In the second approach, you also convert both values to US. dollars using the purchasing power parity a Which approach islikely to give you a more accurate picture of the living standards in both countries? A. The first approach, because the United States is the worlds leader and the dollar is the global reserve currency. B. The second approach, because it's the total dollars that matter. C. The second approach, because it takes into account the relative costs for each country. D. The first approach, because it's the total dolars that matter.

Answer 1

C) The second approach, because it takes into account the relative costs for each country.

Step-by-step explanation:

Living in poor developing nations is much cheaper than living in very rich developed nations, at least for the vast majority of the population. For example, a small house in Japan or Switzerland costs several hundreds of thousands of dollars, while a similar house in Pakistan or Paraguay will cost only a few teds of thousands of dollars.

The purchasing power parity tries to account for these differences in living expenses using the US dollar as the base currency, and in this case the Ghanaian oedi's value will be adjusted (receive higher value) to compensate for the lower cost of living in Ghana.