What's the difference between GDP (PPP) per capita and GDP (Nominal) per capita?

Question

and which one is more accurate? Thanks

I think I get it now. I was just wondering because the Dominican Republic has a PPP per capita of about $9,000 and a nominal of around US$3,000. So this means that even though they make US$3,000 a year in reality they have purchasing power equivalent to US$9,000? Thanks!

Answer 1

It is not a matter of accuracy but what you need the number for. If you want a measure of the standard of living in a country then GDP per capita using PPP is a better measure because is scaled to the cost in of a market basket of goods in a country using local currency, that is the cost of living. It requires making an estimate for an entire country where the cost of living varies from place to place, for example in the US the cost of living in New York City is almost double the cost in Mississippi.

Using Official exchange rate to obtain Nominal GDP also has problems. Although the exchange rate is known with great accuracy at any moment in time it varies over tome. The dollar has lost between 10 and 20% of its value recently vs other countries, so Nominal GDP measured in dollars show other countries GDP growing 10 or 20%. However if you are interested in questions like trade or cross country investment it is the correct measure to use