Detailed Explanation:

Answer: Option 1 — 1 only

This question tests understanding of Purchasing Power Parity (PPP) and India's global economic ranking. Statement 1 correctly defines PPP methodology, while Statement 2 contains outdated information about India's PPP ranking.

✅ Statement 1 – Correct: PPP exchange rates are indeed calculated by comparing the prices of an identical basket of goods and services across different countries, eliminating the effect of exchange rate fluctuations and providing a more accurate comparison of living standards and economic productivity.

❌ Statement 2 – Incorrect: India is the third-largest economy in the world in terms of PPP dollars (after China and the United States), not the sixth-largest. In nominal GDP terms, India ranks fifth, but the question specifically asks about PPP dollars.

📝 Short Notes: Purchasing Power Parity (PPP)

• Definition: PPP is an economic theory and method that compares different countries' currencies through a "basket of goods" approach, eliminating differences in price levels between countries.
• Purpose: PPP exchange rates provide a better comparison of real income levels and living standards than nominal exchange rates, as they account for cost of living differences.
• PPP vs Nominal GDP: PPP adjusts for price differences, making it more suitable for comparing economic welfare; nominal GDP uses market exchange rates and reflects international purchasing power.
• India's Global Ranking (PPP): India is the 3rd largest economy by PPP GDP (after China and USA), but 5th by nominal GDP (after USA, China, Germany, and Japan).
• Largest Economies by PPP (2023-24): 1. China, 2. United States, 3. India, 4. Japan, 5. Germany.
• IMF and World Bank: Both international organizations regularly publish PPP-based GDP estimates for comparative economic analysis across nations.