## GDP and PPP

Instructor: Alex Tabarrok, George Mason University

How do we compare the standard of living in two different countries or in the same country over time? Comparisons of per capita Gross Domestic Product are one

How do we compare the standard of living in two different countries or in the same country over time? Comparisons of per capita Gross Domestic Product are one possible answer but what is GDP? What is nominal GDP? What is real GDP? And how do we compare US GDP of say 14.5 trillion dollars with Thai GDP of 9.5 trillion baht? It's more complicated than it looks! Exchange rates, for example, fluctuate much more rapidly than does the standard of living. Thus, in this video we look in more detail at the GDP statistic and how we compute Purchasing Power Parity adjusted GDP.

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Typically you wouldn't do the transform yourself, you would simply look at the WB or IMF for PPP converted GDP figures. The transformation is pretty simple, however. The IMF calculates, for example, an Argentinian PPP value of 2.2 so you would take the Argentinian GDP in pesos in 2010 of ~400 billion multiply by 2.2 to get \$880 billion PPP adjusted GDP in "international dollars". You could then calculate the PPP adjusted GDP per capita figures by dividing by population and so forth.