International Comparisons of Income (PPP)

One of the challenges that faces macroeconomists is comparing the gross domestic product across countries. Using a numerical illustration of the Purchasing Power Parity (PPP), which is the concept of comparing currencies based on comparative costs to buy the same goods, Professor Sachs is able to show how countries stack up in terms of production, income levels, and the size of their national economy. He also explains the problems in applying PPP using different country examples. He goes on to explain how macroeconomists make adjustments in the use of PPP, and the function of arbitrage in a macroeconomy.

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