Question

Without adjusting for PPP, emerging economies contribute about 30% of the global GDP. Adjusting for PPP, they now contribute approximately 50% of the global GDP. The reason there is a huge difference between the two measures is because

Answer 1

A) the cost of living in emerging economies tends to be lower than that in developed economies.

Step-by-step explanation:

It is usually cheaper to live in emerging countries than on developed countries. Generally speaking, the salaries in emerging countries are much lower than salaries at developed nations, for example a Chinese worker earns on average approximate $12,077 per year, while an American worker earns $44,720 per year. Chinese workers live with their salary and their families also live with it, so we can assume that living in China is cheaper than living in the US.

The purchasing power parity (PPP) is adjusted by the difference in relative prices between countries, e.g. a house in Switzerland costs 10 times as much as a house in Mexico.