# What is the difference between PPP and nominal GDP?

## What is the difference between PPP and nominal GDP?

Nominal GDP does not take into account differences in the cost of living in different countries. To account for the differences in the cost of living between countries, we use the PPP exchange rate for conversion. The PPP exchange rate is the ratio of the currencies’ purchasing power.

GDP per capita based on purchasing power parity (PPP). PPP GDP is gross domestic product converted to 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.

What is the relationship between nominal GDP and purchasing power parity?

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Pairing Purchasing Power Parity With Gross Domestic Product. In contemporary macroeconomics, gross domestic product (GDP) refers to the total monetary value of the goods and services produced within one country. Nominal GDP calculates the monetary value in current, absolute terms. Real GDP adjusts the nominal gross domestic product for inflation.

### What is the difference between GDP nominal and GDP PPP?

The key difference between GDP nominal and GDP PPP is that GDP nominal is the GDP unadjusted for the effects of inflation and is at current market prices whereas GDP PPP is the GDP converted to US dollars using purchasing power parity rates and divided by total population.

### What is the relationship between purchasing power and gross domestic product?

Pairing Purchasing Power Parity With Gross Domestic Product. In contemporary macroeconomics, gross domestic product (GDP) refers to the total monetary value of the goods and services produced within one country. Nominal GDP calculates the monetary value in current, absolute terms.

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What is purchasing power parity (PPP)?

Purchasing power parity (PPP) is used to adjust the exchange rate differences among countries. This economic theory states that the exchange rate between two currencies is equal to the ratio of the currencies’ respective purchasing power.