Lesson 1, Topic 1
In Progress
Comparing Economic Performance across Countries
Abdulaziz July 22, 2020
- The exchange rate:
- Price at which different currencies are traded.
- To make comparisons of GDP across countries we must take the following steps:
- GDP must be expressed in a common currency by first adjusting it by the exchange rate.
- This value of nominal GDP must be multiplied by the ratio of prices in the countries.
Example: China and United States
- First, use the exchange rate to turn Chinese yuan into U.S. dollars.
- Adjust for relative price level of goods.
- Price level ratio is about (1/0.3), so the real GDP of China is $11.7 trillion.
- Comparison of countries:
- In general, rich countries tend to have higher price levels than poor countries.
- This is mainly because poor countries have lower wages.
