Japanese GDP in 2010 was 480 trillion yen US GDP was S145 tr

Japanese GDP in 2010 was 480 trillion yen (U.S. GDP was S14.5 trillion in 2010). The exchange rate in 2010 was 87.8 yen per dollar. The price level in Japan (converted to dollars) divided by the price level in the U.S. was 1.243 in 2010.

Solution

1.) Japanese GDP =480 trillion yen

US GDP=14.5 $ trillion

1$ =87.8 yen

1 yen=1/87.8 $

480 trillion yen=480/87.8=5.47 trillion $

US GDP=14.5 trillion $

Ratio of japanese GDP to US GDP=5.47/14.5=0.38

2.)Price level in Japan /price level in US =1.243

Prices in Japan is 1.243 of US prices

Controlling for price differentials,

Ratio of Japan GDP to US GDP =0.38/1.243=0.30

3.) These two numbers are different because second measure accounts for same goods costing more in Japan.