Answer to Question #64997 in Macroeconomics for dennis sifuna

Question

Explain why economists do not use exchange rates to compare standards of living across countries. Also, discuss what economists do to avoid these problems

Answer 1

Economists do not use exchange rates to compare standards of living across countries, because the exchange rate of particular currency shows only the relationship with another currency, but doesn't measure the wealth of people or of the country, because the price levels for goods and services in different countries are almost equal. That's why, for example, GDP per capita is used to compare standards of living across countries.