What is the difference between nominal gdp and ppp gdp

But, to get r eal GDP we use the prices in the base year. The base year for India is The common currency is usually US dollars. This conversion can be done through two methods:. Nominal GDP does not take into account differences in the cost of living in different countries.

This is because the purchasing power is more in India as the cost of living is low. To account for the differences in the cost of living between countries, we use the PPP exchange rate for conversion.

In India, you can buy it for Rs. Personal Finance. Your Practice. Popular Courses. Economics Macroeconomics. Table of Contents Expand. Calculating Purchasing Power Parity. Comparing Nations' PPP. Drawbacks of PPP. The Bottom Line. Key Takeaways Purchasing power parity PPP is a popular metric used by macroeconomic analysts that compares different countries' currencies through a "basket of goods" approach.

Purchasing power parity PPP allows for economists to compare economic productivity and standards of living between countries. Article Sources. Investopedia requires writers to use primary sources to support their work.

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This compensation may impact how and where listings appear. Amadeo, Kimberly. Dili has a professional qualification in Management and Financial Accounting. Your email address will not be published. Figure Historical top ten nominal GDP. Leave a Reply Cancel reply Your email address will not be published. Underlying Concept. GDP nominal is derived based on the concept of interest rates. Fluctuations in the country's currency exchange rates may change a country's ranking from one year to the next, even though they often make little or no difference to the standard of living of its population.

PPP basis is arguably more useful when comparing differences in living standards between nations. A haircut in New York is more expensive than in Lima; the price of a taxi ride of the same distance is higher in Paris than in Tunis, and a ticket to a cricket game costs more in London than in Lahore. PPP is an exchange rate at which one country's currency is converted into that of the second country to purchase the same volume of goods and services in both countries.

PPP exchange rates are relatively stable over time. For the United States, both are identical. Sudan has the highest difference between PPP and nominal gdp calculation. Six countries have ppp to the nominal ratio between , and 34 economies have higher ppp values above three times.