What is the difference between cross-country comparisons of GDP per capita in US dollars and so-called purchasing power dollars (aka international dollars)?

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The Answer is GDP per capita is a measure of a country's economic output that accounts for its number of people. It's a way to compare the economic performance of different countries. When comparing GDP per capita across countries, economists often use two different methods: nominal GDP per capita in US dollars and GDP per capita based on purchasing power parity (PPP) in international dollars. Here's the difference between the two:

1. GDP per Capita in US Dollars (Nominal):
When GDP per capita is measured in US dollars, it is converted from a country's currency at current market exchange rates. This method is straightforward but can be misleading for cross-country comparisons due to the following reasons:

- Exchange rates can fluctuate significantly due to factors like speculation, interest rates, and short-term economic events, which may not reflect the actual economic conditions.
- Market exchange rates do not account for differences in price levels between countries. Goods and services may be cheaper or more expensive in one country compared to another, which isn't captured in the exchange rate.

Because of these issues, nominal GDP per capita can give a skewed view of the relative living standards or economic well-being between countries.

2. GDP per Capita in Purchasing Power Dollars (PPP):
To address the limitations of nominal GDP per capita, economists often use purchasing power parity. PPP takes into account the relative cost of living and the inflation rates of the countries when comparing the GDP per capita. This is done by comparing the prices of a basket of identical goods and services in each country.

GDP per capita in PPP terms is expressed in international dollars, which is a hypothetical currency that has the same purchasing power over GDP as the US dollar has in the United States. By using PPP, economists can make more accurate comparisons of economic productivity and living standards across countries because it reflects what people can actually buy with their money in their local economies.

In summary, the main difference between the two measures is that nominal GDP per capita in US dollars is based on current exchange rates, which can be volatile and do not reflect differences in price levels, while GDP per capita in PPP terms is adjusted for price level differences across countries, providing a more accurate comparison of the economic well-being of their citizens.

What Is the Difference Between Cross-Country Comparisons of GDP Per