Question

1. Discuss the effectiveness of Purchasing Power Parity (PPP) as an economic development measurement tool. In your answer outline other economic development measurement methods and discuss why or why not you consider these to be more effective. Use examples where appropriate.

Answer 1

PPP is highly inefficient as it directly proposes functional relationships between purchasing power of currency of two countries and their subsequent exchange rates. It also asusmes that we deal with similar cohort of commodities, free trade and absence of exchange of control.

Other economic development tools like GNP per capita and Human development index are more effective and efficient largely as it gives true picture and reflects the quality of life. GnP per capita truly depicts economic activity by person and shows how each individuals contributed towards economic development. Similarly HDi depicts life Expectancy which is sign of economic development.