GDP PPP, or Gross Domestic Product based on Purchasing Power Parity, is a measure that takes into account the relative cost of local goods, services, and inflation rates of a country, rather than using international market exchange rates. It is calculated by converting the gross domestic product into international dollars using purchasing power parity rates. An international dollar has the same purchasing power over GDP as the U.S. dollar has in the United States).
Key points about GDP PPP include:
- It allows economists to compare economic productivity and standards of living between countries.
- It is used to gauge global poverty thresholds and is used by the United Nations in constructing the human development index).
- GDP PPP comparisons are arguably more useful than those using nominal GDP when assessing the domestic market of a state because PPP takes into account the relative cost of local goods, services, and inflation rates of the country).
- It is used to measure the volume of GDP of countries or regions by dividing GDP by the corresponding purchasing power parity (PPP), which is an exchange rate that removes price level differences between countries_in_purchasing_power_standards).
In summary, GDP PPP is an important economic metric that provides a more accurate comparison of economic productivity and standards of living between countries by considering the relative cost of goods and services and inflation rates.
