Lesson 3, Topic 3
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Comparing Economic Performance across Countries

Abdulaziz July 22, 2020
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  • The exchange rate:
    • Price at which different currencies are traded.
  • To make comparisons of GDP across countries we must take the following steps:
    • GDP must be expressed in a common currency by first adjusting it by the exchange rate.
    • This value of nominal GDP must be multiplied by the ratio of prices in the countries.
Stock exchange or bourse

Example: China and United States

  • First, use the exchange rate to turn Chinese yuan into U.S. dollars.
  • Adjust for relative price level of goods.
  • Price level ratio is about (1/0.3), so the real GDP of China is $11.7 trillion.
  • Comparison of countries:
    • In general, rich countries tend to have higher price levels than poor countries.
    • This is mainly because poor countries have lower wages.
Exchange Rates
Exchange Rates