GDP of U.S. & China?

Question

GDP(PPP) of U.S. is almost equal to its nominal GDP while GDP(PPP) of China's more than three times its nominal GDP. Why?

Answer 1

In addition to Meg's reference to the Penn effect, note these reports of GDP by PPP are BASED on the U.S. Dollar in the first place, so the U.S. will naturally be close to one -- it is the yardstick.

The basic reason behind the varying real incomes is the value of labor and the levels of efficiency and productivity. Think of an act of pure human labor: you hire someone to clean your house, and you pay them for their time and effort.

In the U.S. you might have to pay an American US$50 to clean your house. In China you may only have to pay someone US$5. Either way a house gets cleaned, so in China it requires much less income to be able to afford housecleaning. PPP tries to account for this difference. People get PAID less, but most things COST less.

But PPP can be misleading, the more that some product requires inputs other than pure labor. Something that is manufactured using capital equipment that must be imported will not be nearly as much cheaper as our housecleaning example. And a finished import, like an imported Hinda Civic for sale in China, may be even more expensive there than it is in the US.

Answer 2

In part it is due to the Penn effect. that is real income ratios between high and low income countries are systematically exaggerated by GDP conversion at market exchange rates. In addition China has a policy of depressing the value of their currency to promote exports.
http://en.wikipedia.org/wiki/Penn_effect

Answer 3

Because the average cost of living in China is much less than in the US. $1 buys a lot more in China than it does in the US.

Answer 4

how many people live in the usa? and how many live in china? if u divide by a bigger number then u ll get a less root...