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GDP nominal vs. GDP PPP

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Absolutely Corrupt (x4)
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Absolutely Corrupt (x4)
Post Mon May 12, 2008 10:17 pm
can someone tell me which is a more accurate measurement of economic power for a country?

I never understand the nominal GDP, for Russia the nominal GDP of 2007 is 1.2$ trillion, while its GDP PPP is 2.0$+ trillion.

Isn't the nominal GDP based on the value of the USD currency exchange rate?

If so, this is not accurate for countries that have under or overvalued currency. Some economists speculate that the Russian ruble is actually undervalued, to keep foreign imports high.
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Post Mon May 12, 2008 10:24 pm
Quote:
purchasing power parity (PPP)


Quote:
Russia Rank 52 : 14,692 $




http://en.wikipedia.org/wiki/List_of_co ... y_GDP_(PPP)_per_capita

Well i don't know exactly how this is calculated

1
World $ 65,820,000,000,000 2007 est.
2
European Union $ 14,450,000,000,000 2007 est.
3
United States $ 13,860,000,000,000 2007 est.
4
China $ 7,043,000,000,000 2007 est.
5
Japan $ 4,417,000,000,000 2007 est.
6
India $ 2,965,000,000,000 2007 est.
7
Germany $ 2,833,000,000,000 2007 est.
8
United Kingdom $ 2,147,000,000,000 2007 est.
9
Russia $ 2,076,000,000,000 2007 est.
10
France $ 2,067,000,000,000 2007 est.

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Post Mon May 12, 2008 11:34 pm
Depends. Probably PPP, but that really only refers to the economic power of the country relative to its own prices, how much of its own goods at its price level can the country buy, etc. Nominal is probably more important when speaking globally.

I view Russia's economy as basically the same size as California's.
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Post Mon May 12, 2008 11:59 pm
I tend to prefer PPP, as it gives a better idea of how well the system is working in that country.
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Post Tue May 13, 2008 12:38 am
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I view Russia's economy as basically the same size as California's.

Is that a good thing? California is large and powerful enough to be its own country.
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Post Tue May 13, 2008 1:42 am
Nominal GDP is the sum of all goods and services produced in an economy in US $.

However, there are price differences between countries. In Russia, the average good / service is roughly twice cheaper than in the US, in $. Equalizing prices would give Russia's real PPP GDP. Nominal GDP divided by real GDP is the GDP deflator, i.e. the price differential.

Russia's (2.1tn $) PPP GDP is somewhat larger than California's (1.7tn $), but the scale is similar.

PPP GDP is a much better reflection of the material standard of living in a country, but nominal GDP is more useful as a measure of importance in the world economy.
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Post Sun May 18, 2008 6:12 am
Quote:
Nominal GDP is the sum of all goods and services produced in an economy in US $.

However, there are price differences between countries. In Russia, the average good / service is roughly twice cheaper than in the US, in $. Equalizing prices would give Russia's real PPP GDP. Nominal GDP divided by real GDP is the GDP deflator, i.e. the price differential.

Russia's (2.1tn $) PPP GDP is somewhat larger than California's (1.7tn $), but the scale is similar.

PPP GDP is a much better reflection of the material standard of living in a country, but nominal GDP is more useful as a measure of importance in the world economy.


To add to what's above, it's important to understand that PPP is purely theoretical, since there are anomalies such as international arbitrage and transport costs, etc. Also, for those that like a different take on PPP, check out the BMI (Big Mac Index) at Economist.com
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Post Sun May 18, 2008 9:16 pm
I will just add a piece of information: nominal GDP is used to measure the debt’s ratio because it takes into account the price fluctuation which affects the amount of money you have to pay off.
Personally the nominal GDP as it was said above is safer in international comparisons plus the calculation of PPP is very arcane and based more on theory than facts (it is only assumptions and as it was pointed out with California in America the standard of living aren’t the same wherever you are in a country).
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Post Mon May 19, 2008 3:15 am
Quote:
I will just add a piece of information: nominal GDP is used to measure the debt’s ratio because it takes into account the price fluctuation which affects the amount of money you have to pay off.
Personally the nominal GDP as it was said above is safer in international comparisons plus the calculation of PPP is very arcane and based more on theory than facts (it is only assumptions and as it was pointed out with California in America the standard of living aren’t the same wherever you are in a country).


However, nominal GDP is mostly irrelevant for comparing standards of living between countries. Each statistic has its unique uses.
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Post Mon May 19, 2008 6:06 am
PPP is preferable over nominal because nominal only gives the output of a country in terms of one currency (the USD). Countries like China will naturally provide misleading information regarding it's economic capabilities if nominal GDP is used for measurement; the currency is pegged to a basket of currencies as a managed float. PPP is a more accurate measurement because it equalizes exchange rates in terms of the real purchasing power of that country. However, PPP is without its own problems, mainly due to its idealistic attempt at ignoring different forms of managing exchange rates (free or peg, for example).
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