Mnementh said:
VAMatt said:
I know what PPP is. What I'm saying is that we don't use PPP for this purpose. PPP is used for standardizing the value of the (in this case) dollar over time. If you apply PPP here, it doesn't change the action of the graph shown in the video.
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No, if you say it is for equalling dollar over time and say it doesn't change anything in the video, you don't understand what PPP means. Let's say for one dollar you get at your bank 10 yuan (it currently is probably less, but whatever). But for one dollar you can buy at McDonalds in the US say one burger, but with 10 Yuan you can buy at McDonalds in Beijing say 3 burgers. So the exchange course actually undervalues the yuan three times. As the economy of each country is working with said countries currency in that case exchange course makes the US economy bigger in comparison to chinas. Therefore in the PPP-list of economies china has overtook the US for quite some time and India is ahead of Japan, the UK and germany, in difference to the order if you calculate the GDP according to exchange rates as the video did. Look at the two links, the order is quite different.
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I understand what you're saying now. I've never seen PPP used in that way though. PPP, as I've always known it to be used, is for standardizing over time. In other words, if a McD's burger cost 10 cents in 1950, but it costs a dollar now, we use PPP to determine that a person with $5 in 1950 can buy as much as a person with $50 today.
With all of that said, I'd take issue with a comparison of GDPs that uses PPP in the way you mention. Because, as a country's GDP rises, the purchasing power of a person in that country typically decreases relative to a person in another country (this is caused by many factors, but a major one is increasing regulation), assuming we're working with a standardized currency. So, I can't see how we'd be able to gain an accurate understanding of anything by watching a video like this one, if it used PPP in the way you mention. It would skew toward poorer countries.