Economics Asked by Hans-Peter Stricker on September 1, 2021
Is there one single formula which allows to calculate the income of a person in PPP$ from her income in LCUs (local currency units), given for example the PPP conversion factor, GDP (LCU per international $) as published by the World Bank.
Assume for example an Indian farmer with a monthly income of ₹50,000, given India’s PPP conversion factor of 18 and exchange rate ₹70 = $1. What is his monthly income in PPP$ and by which formula? Is other or further information needed?
Vice versa: What is the farmer’s monthly income in rupees when his income is known to be PPP$30?
References:
GapMinder’s Dollar Street
The Economic Lives of the Poor by Abhijit V. Banerjee and Esther Duflo
It works like any other exchange rate:
Divide ₹50,000 by 70 to get about US$714 / month at market exchange rates
Divide ₹50,000 by 18 to get about PPP$2778 / month at PPP rates (so not a poor farmer)
Multiply USD$30 by 70 to get ₹2100 at market exchange rates
Multiply PPP$30 by 18 to get ₹540 at PPP rates
Answered by Henry on September 1, 2021
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