Under Purchasing Power Parity, PPP-adjusted GDP can be more similar across countries than nominal GDP suggests. Which statement best reflects this idea?

• A. PPP-adjusted GDP can be closer across countries than nominal GDP indicates
• B. PPP-adjusted GDP is always identical to nominal GDP
• C. PPP-adjusted GDP is irrelevant to cross-country comparisons
• D. PPP-adjusted GDP always exceeds nominal GDP by a fixed percentage

Answer: (A)

PPP-adjusted GDP accounts for how much people can actually buy in each country by using a common price level, rather than relying on market exchange rates. This means it neutralizes differences in price levels and currency values, so the size of an economy in PPP terms reflects real purchasing power rather than how expensive or cheap goods are priced abroad or how strong a currency is. Because of that, GDP measured at PPP can end up looking more similar across countries than nominal GDP does when you translate everything at current exchange rates. The idea isn’t that PPP GDP is identical to nominal GDP or that PPP is irrelevant; it’s that PPP provides a more comparable measure by equalizing price levels, and it can shift the apparent relative sizes of economies—sometimes making them look closer together.