goods and services are so much higher when converted at the current exchange rate. GDP per person is thirty times higher, that income may not purchase thirty times more goods and services in the U.S. goods would seem considerably more expensive. ![]() From a Chinese traveler’s perspective, many U.S. One thing that is quickly recognized by Americans when they travel in and around China is that many goods and services seem considerably cheaper than they are in the United States. However, there is a problem using this method. per capita GDP was almost thirty times higher than China’s. Converting yuan to dollars yields a per capita GDP for China of $1,390. The simplest approach to make this conversion is to use the spot exchange rate that prevailed in 2004, which was 8.28 yuan per dollar. Thus we need to convert units, either turn dollars into yuan or yuan into dollars. However, we can’t compare these two per capita figures since they are in different units-dollars and yuan. China’s population was approximately 1.3 billion people in 2004, so its GDP per capita works out to 11,500 yuan (¥) per person. With a population in the United States of 290 million people, per capita U.S. In 2004, GDP in the United States was approximately $12 trillion in China GDP was about ¥16 trillion. ![]() Suppose that we would like to compare per capita GDP between two countries-say, the United States and China. Probably the most important application of purchasing power parity (PPP) exchange rates is in making cross-country comparisons of income, wages, or gross domestic product (GDP).
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