In 2008, the World Bank estimated that, at current exchange rates, Kenya’s GDP per capita (in U.S. dollars) was $730. For the same year, U.S. GDP per capita was $47,580.
a. The World Bank uses the Atlas method to convert data into U.S. dollars at current exchange rates. The Atlas method uses an average of three years of exchange rates plus adjustments for inflation and other factors. Why would it be desirable to use a method like this?
b. What problems do you see in comparing GDP per capita in the United States to GDP per capita in Kenya using these data?
c. Adjusting for purchasing power parity, the World Bank calculates Kenya’s GDP per capita to be $1,580.Why is this number so different from the original figure? Explain.
d. How many times larger is GDP per capita in the United States than GDP per capita in Kenya before the purchasing power adjustment? After the adjustment?