Consider the following statements:
1. Purchasing Power Parity (PPP) exchange rates are calculated by comparing the prices of the same basket of goods and services in different countries.
2. In terms of PPP dollars, India is the sixth largest economy in the world.
Which of the statements given above is/are correct?
Explanation
Statement 1 is correct: Purchasing Power Parity (PPP) exchange rates are calculated by comparing the prices of an identical, standardized basket of goods and services across different sovereign currencies (the law of one price), eliminating relative price level differences.
Statement 2 is incorrect: Measured in terms of GDP at PPP dollars, India is the third largest economy in the world (surpassed only by China and the United States), not the sixth largest.
Therefore, only statement 1 is correct — Option A.