What is PPP-adjusted GDP per capita and why is PPP used?

• A. GDP per capita adjusted for price differences using purchasing power parity; PPP makes cross-country living-standard comparisons more meaningful.
• B. GDP per capita adjusted for exchange rate fluctuations only.
• C. Total GDP without population adjustment.
• D. PPP is a tax policy.

Answer: (A)

PPP-adjusted GDP per capita looks at how much people can actually buy with the income generated in their country, by adjusting prices to a common scale across countries. Using purchasing power parity means a certain amount of money buys roughly the same bundle of goods and services everywhere, so price differences don’t distort comparisons of living standards. This makes cross-country welfare comparisons more meaningful than using market exchange rates alone, which can swing due to currency values rather than real purchasing power. It also separates the measure from total output and from policy details like taxes. In short, it captures real purchasing power per person rather than nominal dollars or raw production totals.