Therefore, converting different incomes in one exchange rate can create a wrong picture of the true purchasing value of a currency. Despite these potential problems, GDP remains a rough estimate for comparing different living standards.Ī further potential problem when comparing GDP values of different countries, is the influence of exchange rates, which are only determined by international traded goods. Therefore, when comparing countries with different population sizes it is advisable to compare the GDP per capita (GDP earned per capita). The source of a high total GDP value could be extensive population density, because more people are available as labour force. In addition, many aspects of economic wealth cannot be measured by GDP. For instance, GDP also includes foreign investment and does then not represent wealth in that Country, but the foreign investment value. It can be calculated as either the total income earned in a country or the value of the output produced in a country.Įconomic measurement with the GDP (output or national income) also includes potential problems. It measures the market value of all services or final goods produced in a country during a year. The indicator commonly used to examine the degree of development of a country’s economy is the Gross Domestic Product (GDP). Measurement of economic development: GDP versus PPP Back to top Chapter 1: The facts to be explained
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