Question:
Which two arguments imply that real GNI per capita may be a misleading indicator of the standard of living between different countries? A- Does not take account of differing inflation. B- Different degrees of non-market activities. C- Differing consumer tastes. D- Exchange rate distortions. E- Income vs expenditure approach.
(1) A and B
(2) B and C
(3) B and D
(4) C and D
(5) D and E
Correct Answer:
(3)
Answer Explanation:
Real GNI already accounts for inflation (eliminating argument A). However, comparing standard of living between countries is flawed because developing countries have large non-market/subsistence sectors (B) that aren’t counted in GNI. Furthermore, simple exchange rates distort actual purchasing power, necessitating Purchasing Power Parity (PPP) adjustments (D).
Topic: Economic Development Year: 2018
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