1. Definition: PPP is a theory that states that exchange rates between currencies are in equilibrium when their purchasing power is the same in each of the two countries.
2. Comparison method: It allows for a more accurate comparison of living standards between countries, as it accounts for the relative cost of living and inflation rates, rather than just using market exchange rates.
3. Calculation: PPP is calculated by comparing the cost of a specific basket of goods and services in different countries. This basket typically includes common items like food, housing, transportation, and healthcare.
4. International Dollar: PPP is often expressed in terms of an "international dollar," which has the same purchasing power as the U.S. dollar has in the United States.
5. Use in economic analysis: Economists and international organizations often use PPP to make more accurate comparisons of GDP and living standards across countries.
6. Advantages: PPP provides a more realistic view of a country's economic output and standard of living, especially for developing countries where the cost of living is typically lower.
7. Limitations: PPP calculations can be complex and time-consuming, and the results can vary depending on the basket of goods chosen for comparison.
In the context of the data you provided, the PPP-adjusted GDP figures give a different perspective on the size of economies compared to nominal GDP figures. This method often results in higher valuations for emerging economies where goods and services are generally cheaper.
Would you like me to elaborate on any specific aspect of PPP or its implications for the economic rankings you shared?
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