Two countries have the same nominal GDP per capita but one has a lower price level. Which conclusion is more appropriate from a purchasing-power perspective?
Answer and explanation
Correct answer: The lower-price country can buy more goods with the same income
Purchasing power means the quantity of goods and services that a given income can buy. If nominal GDP per capita is equal but prices are lower in one country, the same nominal income purchases a larger basket there, so its real purchasing power is higher. Option C is correct. Nominal equality does not guarantee equal real living standards, and options B and D reverse or deny the role of prices. A would require comparable prices and other conditions.
Frequently asked questions
What is the correct answer to this question?
The lower-price country can buy more goods with the same income
Why is this the correct answer?
Purchasing power means the quantity of goods and services that a given income can buy. If nominal GDP per capita is equal but prices are lower in one country, the same nominal income purchases a larger basket there, so its real purchasing power is higher. Option C is correct. Nominal equality does not guarantee equal real living standards, and options B and D reverse or deny the role of prices. A would require comparable prices and other conditions.
Which subject and chapter does this question cover?
This is a Class 11 Economics question. Chapter: National Income and Related Aggregates. Topic: GDP and Welfare.
