Comparing GDP among Countries

Critical Thinking Question

Cross country comparisons of GDP per capita typically use purchasing power parity equivalent exchange rates, which are a measure of the long run equilibrium value of an exchange rate. In fact, we used PPP equivalent exchange rates in this module. Why could using market exchange rates, which sometimes change dramatically in a short period of time, be misleading?

Why might per capita GDP be only an imperfect measure of a country’s standard of living?