True or False: Purchasing power parity increases the gap between developed and developing countries.

Purchasing power parity (PPP) is an economic theory that suggests that in the long run, exchange rates should adjust so that identical goods cost the same in different countries when expressed in a common currency. This concept is used to compare the economic productivity and standards of living between countries, allowing for a more accurate measurement of how much of a particular currency is needed to purchase the same goods in different locations.

The assertion that PPP increases the gap between developed and developing countries is not correct. Instead, PPP can provide a more level playing field for economic comparisons between countries by taking into account differences in price levels and cost of living. This adjustment often highlights the greater purchasing power of incomes in developing nations relative to nominal exchange rate comparisons, which may not accurately reflect local consumer purchasing power or economic conditions.

In many cases, using PPP can illustrate the potential for economic growth in developing countries, enabling a more favorable picture of their economic situation, as they may have lower costs for goods and services. Consequently, by providing a more realistic measure of economic capacity, PPP can help address disparities rather than increase them. Therefore, it's reasonable to conclude that the statement is false.