Using PPPs for making international comparisons

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Reference no: EM13798684

GDP per capital (nominal) would be the actual cash of the average person in the given country has per year. It equals GDP divide by the population. When converting the cash equivalent of someone in let’s say China, if the average China people makes 6,000 and the exchange rate is $1 equals 6 then we would say that the nominal GDP per capita is $1000 in China.

GDP per capita (PPP) takes into consideration that the money can buy a different amount of goods in each country. $100 in United States buys a lot less than the same $100 converted into China and shopping in China. Let’s say a Guess jean in USA costs $50 ($300), but in China it costs $3000. We can say that the PPP exchange rate is 10:1. So if the nominal GDP per capita in China is $1000, then we would say that the PPP GDP per capita is $10000.

What is the alternative to using PPPs for making international comparisons? This answer will likely explain why PPP estimates were first created at the beginning.

Reference no: EM13798684

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