Quote:
Originally Posted by dimondpark
I just believe that the total unadjusted value of all activity is the only apples to apples comparison that accurately measures the actual size of one national economy vs another.
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Sure, I can see that. But no one quantitatively measures values purely to measure values, right? I mean, other than people on SSP who like to make comparisons for comparisons' sake. There's always a reason why you compare A to B, and if we're comparing Economy A to Economy B, it's probably because we want to understand what A and B can actually do with their economic outputs in real-world situations, and what they can do differently from one another. And in the real world, currencies don't exist in a vacuum - they're all relative to one-another.
Economy A produces 100 units of nominal GDP per year. Economy B produces 102 units of nominal GDP per year. Economy B's currency drops 5% over night vs. Economy A's. Did the
actual, in-market value of what Economy B produces also suddenly drop by 5% over night, and now Economy A actually outproduces Economy B
on the ground, in Economy B Land? Of course not.
Nominal GDP necessarily assumes a static exchange rate. It's an precise snapshot of a single moment in time. You can think of it as a "Current Dollar GDP without adjusted inflation figures." PPP smooths this out and adjusts for over /under-valuations in exchange rates. Nominal GDP also has trouble accurately accounting for currencies which don't float. The yuan is a great example: can you assume nominal GDP "works" at comparing economic output of the US, Japan, UK, and China when the British pound floats against the USD and JPY, but the yuan is pegged and can only move 2% vs the other fiats on any given day? This is an artificial distortion and makes the apples-to-apples comparison tough.