GDP PPP or Nominal GDP?

Author: Trent0405 ,

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  • Trent0405
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    Trent0405
    Which measurement is superior when determining the size of an economy? I'd say GDP PPP is superior on the whole(unfortunately). GDP PPP does adjust for different cost of livings and such. The only criticism of PPP I've seen is that it's harder to measure.

    Lets break it down--say a service costs 30USD in Chicago, but if that same service costs 15USD in Beijing because of the different cost of living, nominal actually adds 15 and 30 dollars to each economy,  but in PPP, they account for the different cost of livings. So why should the same service be counted differently?

    This argument fascinates me because of the Indian, Chinese, and American economies. If we use GDP PPP America is behind China and a tad ahead of India, but if we use Nominal America is well ahead of both India and China by quite a wide margin.

    Really I'm looking for a compelling argument in favour of Nominal GDP over GDP PPP. Can anybody more informed on this chime in, this topic has been bugging me for years, just a while ago I came to the conclusion that PPP was superior.

  • DynamicSquid
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    --> @Trent0405
    What exactly are the differences between GDP Nominal and GDP PPP?
  • Athias
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    --> @DynamicSquid
    What exactly are the differences between GDP Nominal and GDP PPP?
    Nominal GDP is simply the measure of production (or its market value) of a nation in its own currency. Purchasing Power Parity (PPP) controls for the exchange rates between nations, and measure production using a de facto international metric. I disagree that PPP is "superior." One is a domestic metric; the other is an international one.

234 days later

  • Nikunj_sanghai
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    --> @Trent0405
    Nominal PPP is never correct to measure the strength of an economy, American currency is at a higher valuation because of the strong foreign exchange reserves and demand for dollar, but if someone was to say, construct a six lane highway in America or say build a train track, it will cost tremendously more in America than in my country(India), that is the reason why all fundamentally easy productions are actively outsourced to South Asian and East Asian economies. I can buy a decent car in India for roughly 5-6k , same car might be selling in America for 25k. Why the stark difference? A factory worker in India will be roughly paid - 5-6$ for a day's work, In America it will easily touch 100$ or above.