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Glossary - Total GDP at PPP

This figure shows the size of the economy. It uses the total GDP of a country at PPP. Using this method, the United States are the biggest economy with a GDP of about 12.4 trillion US$ in the year 2005.

 
GDP stands for gross domestic product. It is an indicator of the economic power of a country. GDP is the total income of a country (wages, salaries, profits etc.).


To compare the GDP of different countries it has to be converted into one currency, usually the US Dollar. This can be done by taking current exchange rates. However, using current exchange rates means that the GDP can change considerably from year to year although no dramatic changes have been in that country. This can happen when the exchange rate changes. To avoid that PPP, purchasing power parity, is used. This method is better to compare living standards. A basket of goods in the United States and the same basket of goods (such as some food, some electronic devices etc.) in another country is been purchased. According to the relative values an exchange rate is being calculated. This rate is been used to convert the GDP in national currency into the GDP in US$.

Example:

GDP country A per capita: 100,000 national currency
price basket of goods in United States: 500 US$
price basket of goods in country A: 1,000 national currency

--> 1,000 national currency / 500 US$ = 2 national currency / 1 US$ (= PPP exchange rate)
--> GDP country A in US$ using PPP = 100,000 / 2 = 50,000 US$

 
 

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