To compare nations, if nominal GDP gives the wrong picture in direct conversions at the market...

Question:

To compare nations, if nominal GDP gives the wrong picture in direct conversions at the market price and if PPP (accounts for purchasing power) only shows how far the money goes for consumers, what is a better metric or calculating technique for GDP?

Gross Domestic Product

Gross Domestic Product provides the values of goods and services which are meant for final consumption and those are produced with the domestic boundaries of a nation in an accounting year.

Answer and Explanation:

Nominal GDP accounts for the market value of final goods and services which is measured with the current prices whereas purchasing power parity measures the value of the currency in terms of other currency when the same level of goods are purchased. Both of these measures give the extent of economic performance but the drawback is nominal GDP does not account for the changes in exchange rates and does not consider a comparative study of different countries whereas Purchasing power parity makes possible the comparative statistics of the economic performance of different countries by making conversion into the common currency.

Hence, PPP serves a better metric for calculating the technique for GDP.


Learn more about this topic:

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Gross Domestic Product: Definition and Components

from Economics 102: Macroeconomics

Chapter 4 / Lesson 3
62K

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