Well, PPP has meaning only in the context of multiple currencies, so presumably you’re trying to get a handle on some country’s nominal GDP expressed in a different currency. This means you need a foreign exchange rate, a multiplier to convert units to different units.
At this point things start getting murkier. Sometimes there’s a market FX rate. Sometimes there is an official FX rate (and a different black market one). Sometimes there is no reasonable FX rate at all.
The PPP rate is just one of the possibilities. Depending on the circumstances it might be more or less appropriate.
The crude meaning of GDP converted at PPP rate is “how much stuff at local prices does this country produce/consume”.
It is true. If your nominal GDP of, say, Germany is different from the PPP-based GDP then you’re measuring the same GDP in two different units. One of them is the standard Euro, what is the other unit?
Why would you ever want this?
I don’t understand the question. For example, I find it useful to know that China’s GDP using the official rate is very different from the same GDP using the PPP rate. It gives me better understanding of the Chinese economy and its place in the world.
Perhaps one could talk about the units of PPP by talking about converting Greek GDP from “Greek Euros” to “German Euros.” But that doesn’t mean that the “Greek Euro” is a different currency.
It is useful to know that the cost of living in Greece is lower than the cost of living in Germany. That is, it is useful to know the PPP conversion factor. It is useful to think about GDP per capita in both nominal and PPP terms, to understand what life is like for the average individual. But what use is total GDP in PPP terms? Merely knowing that it differs from nominal GDP is a roundabout way of finding the PPP conversion factor. That’s like saying that BMI is useful because, with height, it allows me to compute weight.
What’s the use of nominal total GDP? I would expect the argument for PPP total GDP to be that it’s a more accurate measure of the same thing, but I’m not actually seeing what the use is.
Yes, total GDP is problematic. For utilitarian purposes PPP is better, but why do it one country at a time? (aside from making utility linear in money)
My comment was triggered by the announcement that China is now “the biggest economy” in PPP terms. One thing “the biggest economy” does is set prices. China can afford to buy more steel than India, so much that it drives the world price of steel. But the fact that there is a world price is closely related to the fact China pays for steel in dollars, not Chungking haircuts or Szechuan real estate. So that’s what total nominal GDP is good for.
What is the meaning and use of (total) GDP, adjusted PPP?
I cannot think of a single use for it (unlike nominal total GDP or PPP GDP per capita).
Well, PPP has meaning only in the context of multiple currencies, so presumably you’re trying to get a handle on some country’s nominal GDP expressed in a different currency. This means you need a foreign exchange rate, a multiplier to convert units to different units.
At this point things start getting murkier. Sometimes there’s a market FX rate. Sometimes there is an official FX rate (and a different black market one). Sometimes there is no reasonable FX rate at all.
The PPP rate is just one of the possibilities. Depending on the circumstances it might be more or less appropriate.
The crude meaning of GDP converted at PPP rate is “how much stuff at local prices does this country produce/consume”.
That’s not true. One does not use a uniform conversion factor across the Eurozone.
Why would you ever want this?
It is true. If your nominal GDP of, say, Germany is different from the PPP-based GDP then you’re measuring the same GDP in two different units. One of them is the standard Euro, what is the other unit?
I don’t understand the question. For example, I find it useful to know that China’s GDP using the official rate is very different from the same GDP using the PPP rate. It gives me better understanding of the Chinese economy and its place in the world.
Perhaps one could talk about the units of PPP by talking about converting Greek GDP from “Greek Euros” to “German Euros.” But that doesn’t mean that the “Greek Euro” is a different currency.
It is useful to know that the cost of living in Greece is lower than the cost of living in Germany. That is, it is useful to know the PPP conversion factor. It is useful to think about GDP per capita in both nominal and PPP terms, to understand what life is like for the average individual. But what use is total GDP in PPP terms? Merely knowing that it differs from nominal GDP is a roundabout way of finding the PPP conversion factor. That’s like saying that BMI is useful because, with height, it allows me to compute weight.
Just because you can see no use does not mean no one can see any use.
What’s the use of nominal total GDP? I would expect the argument for PPP total GDP to be that it’s a more accurate measure of the same thing, but I’m not actually seeing what the use is.
Yes, total GDP is problematic. For utilitarian purposes PPP is better, but why do it one country at a time? (aside from making utility linear in money)
My comment was triggered by the announcement that China is now “the biggest economy” in PPP terms. One thing “the biggest economy” does is set prices. China can afford to buy more steel than India, so much that it drives the world price of steel. But the fact that there is a world price is closely related to the fact China pays for steel in dollars, not Chungking haircuts or Szechuan real estate. So that’s what total nominal GDP is good for.