One Way by Which the World Bank Converts Gross National

question 23

Multiple Choice

One way by which the World Bank converts gross national income (GNI) figures to dollars is to take the GNI in a local currency and convert using the exchange rate, averaged over a three-year period in order to smooth out the effects of currency fluctuations. Which of the following is a shortcoming of this method for international comparisons of standards of living?

• A) Currency exchange rates may fluctuate drastically from year-to-year.
• B) A country could have a relatively high standard of living but, for a variety of reasons, a low exchange rate.
• C) This method cannot be applied to countries that have fixed exchange rates.
• D) The method does not take into account trade conducted on the basis of barter.

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Definitions:

Specialized Machine

Equipment designed for a specific, often complex, function or process within manufacturing or production, not readily substitutable.

Financial Advantage

The benefit gained from making particular investment or financial decisions, often leading to increased wealth or reduced costs.

Machine Hours

The total number of hours that machinery is in operation during a given period, used as a basis for allocating machine-related costs.

Profitable Use

Utilization of resources, assets, or opportunities in a manner that maximizes profits or financial gains.