a) Why is it believed that official exchange rates give misleading results? Hint: Discuss at least two of the limitations.    (b) Describe two main criticisms of the World Bank’s use of PPP in making inter-country comparisons

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Chapter21: Economic Development
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  1. Purchasing Power Parity (PPP) is often used instead of official exchange rates in making inter-country comparisons of per capita income.

(a) Why is it believed that official exchange rates give misleading results? Hint: Discuss at least two of the limitations.   

(b) Describe two main criticisms of the World Bank’s use of PPP in making inter-country comparisons

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