What is the Difference Between GDP Nominal and GDP PPP?

The main difference between GDP Nominal and GDP PPP lies in the way they measure the economic output of a country and how they account for differences in purchasing power among countries. Here are the key differences between the two:

1. Economic output measurement: GDP Nominal measures the economic output of a country using current market prices, while GDP PPP adjusts the GDP by accounting for the differences in purchasing power among countries.
2. Currency: GDP Nominal is measured in the country's national currency (e.g., USD, EUR, JPY), whereas GDP PPP enables comparisons of economic output among countries in a common currency, considering purchasing power.
3. International comparisons: GDP Nominal allows for comparisons of economic output among countries in their own currencies, while GDP PPP enables comparisons of economic output among countries in a common currency, considering purchasing power.
4. Standard of living and economic development: GDP Nominal may not accurately reflect the standard of living, economic development, or poverty levels among countries. GDP PPP provides a better understanding of these factors by considering differences in price levels.
5. Eligibility for international aid and loans: GDP Nominal is typically used to determine the eligibility for international aid and loans, as it reflects the value of goods and services produced at market prices.

In summary, GDP Nominal measures the economic output of a country using current market prices, but it may not accurately reflect the standard of living or economic development. GDP PPP provides a more accurate representation of the economic output and standard of living by considering differences in price levels and purchasing power among countries.

Comparative Table: GDP Nominal vs GDP PPP

Nominal GDP and Real GDP are both measures of the total value of goods and services produced in a country within a specific period. However, they differ in how they account for inflation. Here is a table summarizing the differences between Nominal GDP and Real GDP:

In summary, Nominal GDP measures the value of goods and services produced using current market prices, while Real GDP accounts for inflation by using constant base-year prices. This distinction allows for a more accurate comparison of economic growth between different periods and countries.