1 Why are purchasing power parity numbers more meaningful th

1) Why are purchasing power parity numbers more meaningful than nominal numbers when comparing GDP\'s of different countries and GDP of people living in different countries?

2) Why are foreign business activities more complex than purely domestic ones? What must international business have to overcome above complexities?

3) Why is there opposition to global of trade and integrassion of the world\'s economy

Solution

(1)

Nominal GDP of a country provides the total value of goods and services produced in the economy during the year. If we compare nominal GDPs of different countries, it gives a distorted comparison because, nominal GDP doesn\'t provide any information about per capita GDP of the country, or standard of living of the country\'s residents or about purchasing power of the country\'s currency. Also, non-marketable goods & services are excluded from computing GDP. Finally, some components of GDP may not reflect its resident\'s welfare, for example, higher government spending on defense does not increase the standard of living of its residents, even though GDP increases.

Therefore, alternative measures to nominal GDP are being considered in recent times, out of which purchasing power parity (PPP) is one. The PPP theory states that in the long run, identical goods must cost the same in different countries, adjusted for their exchange rate. Therefore, exchange rates among countries reflect their purchasing power.

PPP can be used in lieu of nominal GDP because, unlike nominal GDP which measures overall national output (income), PPP measures countries\' purchasing powers, which reflects how much better-off or worse-off one country\'s residents are compared to another country\'s residents. Therefore, PPP is a relative measure unlike nominal GDP, which is an absolute measure.

NOTE: Out of 3 questions, the first one is answered. 2nd question belongs to International Business & not Economics.