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Purchasing Power Parity (PPP)

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GCSE Economics
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Text Comments (42)
Nikhil Smith (1 month ago)
Outro still scares me Mr Clarke!
Stephan Makintaya (1 month ago)
Good explanation! Thx.
G Conomics (1 month ago)
Thanks ... pleased it was helpful.
mo brown (1 month ago)
How is the Big Mac a thing you can get every where lol try a tomato or like a fish
Devon Devon (2 months ago)
4:41, another way to look at it (and getting the same result) is if USA GDP is 16 and Japan GDP is18, and if the cost of living is 3 times higher in Japan (big mac 6 dollars in Japan vs just 2 dollars in the US as seen above), then US GDP would become 48 ppp (3 times 16) vs 18 ppp for Japan (no change to Japan GDP.) and by reducing this by dividing both by 3 ,you get 16 and 6. The problem with PPP is that though goods and services may be cheaper in one country, the person might not be able to travel as tourist or purchase a college education in a foreign country where goods and services are more expensive (or buy a iphone etc or country A with ppp gdp of 1 trillion wont have the same buying power as Country B with a nominal GDP of 1 trillion dollar, when it comes to oil (which is price in dollar ) or buying a f-16 jet from the US unless Country A ppp GDP is the same as it nominal GDP such as US , or a country so where the price of a big mac in that country is the same as in the US) ), so 20,000 us dollar in country A might have the same buying power as 40,000 us dollar in the usa, but that 20,000 might not be enough to pay for tuition at a us college or to travel to the us and have the same buying power as a person in the US with a 40,000 dollar income. A second problem with PPP is that though goods and services might be cheaper in Country A , the quality might not be the same as in the US, so though a bus ride in Country A might cost 1 us dollar vs 3 US dollar in the USA, it might not run on schedule, ..... because of not enough buses, might be slower, etc.... and internet service might be cheaper but slower ... there might be longer waiting time just to see a medical doctor or receive treatment though the cost might be lower than in the US. People pay for the quality of goods and services, so it cost more to watch a movie in HD than in SD, A college lab with 50 students is not the same as one with 25 students, a television (way back in the days) with no remote or just one station, is not the same as a television today. A streaming service with not enough shows, movies is not the same as one with .
cagri (4 months ago)
G man knows what's up
G Conomics (3 months ago)
Helen Ryan (5 months ago)
A very clear explanation. However, I am a little confused. If a basket of goods is 8 Big Macs costing U$ 2 = U$ 16, in Japan would the PPP be $6 x 8 Big Macs = $48?
Devon Devon (2 months ago)
Actually the GDP at PPP for the US would be listed as 48 dollar for US and 18 dollars for Japan ( not 16 and 6 but somehow he reduces it to 16 and 6 ) since the ratio of 48: 18 is the same as 16: 6 since ( in this made up example) the cost of living is 3 times in Japan than in the US, so US GDP of 16 dollars (when compared to Japan ) became 48 dollars (16 multiply by 3), and Japan remained at 18 dollars ppp ( so Japan Gdp in ppp is the same as its nominal GdP of also 18 dollars)
Prateek Kumar Verma (4 months ago)
[email protected] is WITH RESPECT TO a particular country. It is just like fixing an axis so that one can compare economies. Here in this video, USA has been taken as reference hence [email protected] is calculated W.R.T. US(taking US cost for big mac). If you want to calculate same W.R.T. Japan then it would be $48 (8*$6) for US and $18 (3*$6) for Japan.
Sarason Salas (5 months ago)
Which basically means that when in the US the $16 gets you 8 Big macs...Now for you to get the same quantity (8) of Big macs in Japan @ $6 each you would need to have $48.
MrVpassenheim (9 months ago)
That was beautiful!
Krisjan Korf (1 year ago)
RIP headphone users @ 5:39
Stephan Makintaya (1 month ago)
YounG TerK (2 months ago)
RIP myself haha
G Conomics (1 year ago)
Haha, apologies!
Loka Man (1 year ago)
really you are so great , best simple explanation, thanks alot
Evocative (1 year ago)
Best explanation on youtube, thank you.
Iam confused with my country.. Gdp ppp of my country is 3 times than nominal GDP
G Conomics. I live in indonesia... And i wanna ask you more... What is the real GDP per capita of my country?? I see many people rich in here.. But with many poor people too.. Inequality is quite high.. Because our geography is Archipelago.. Its make it harder to share the wealth across the country
G Conomics (1 year ago)
It will be a consequence of the purchasing power of the USD in your country - where do you live?
G Conomics. My country have 4000 USD Per Capita Nominal GDP. And 13000 USD GDP PPP. Why?
G Conomics (1 year ago)
Please clarify your question.
Tim Felsky (1 year ago)
Lighting at the end a bit frightening mate.
James Lester (1 year ago)
Why does the US PPP not reduce to $8?
G Conomics (1 year ago)
James Lester if it reduced to $8, the US could only purchase 4 Big Macs rather than 8.
Fox Boucher (1 year ago)
Devon Devon (2 months ago)
In his example, the US has the higher PPP (at 48 dollars, he reduces that 48 to 16 and reduce Japan 18 to 6) since cost of living is three times higher in Japan and the US nominal GDP was listed as 16 dollars. . Both countries would have the same PPP if the US nominal GDP was 6 dollars (since Japan is given as 18 and then US 6 dollars x 3 would give 18 dollars )
Alija Saracevic (1 year ago)
Very helpful!
Keenan Patel (1 year ago)
Does that mean that the yen is overvalued
G Conomics (1 year ago)
Keenan Patel yes, that is correct.
Brunxs20 (1 year ago)
Got a jumpscare at 5:30 lol :0
Brunxs20 (1 year ago)
I mean 5:40 xD
i try to understand all those strategies of Purchasing power in parity
Radha Madhav (1 year ago)
help full
Carlos Baide (1 year ago)
Very good explanation, thank you very much!
berk (1 year ago)
Great video for those looking for a simple explanation for PPP. Cheers.
jack pearce (1 year ago)
Xamzed The CrIngeester (2 years ago)
Xamzed The CrIngeester (2 years ago)
G Conomics (2 years ago)
I will be uploading one video per week on each extract.
Roshan Beadle (2 years ago)
Very helpful, thank you.

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