25 Theories to Get You Started Supply and Demand

Gross Domestic Product

Gross domestic product (GDP) is an economic measure intended to represent the sum of all economic activity in a country. Economic activity is measured according to market value3. Therefore, GDP is the sum of all market value delivered in a country. This quantity is usually presented on a yearly scale. GDP is often given in terms of PPP, since it is a more accurate reflection of buying power4 . ‘Nominal’ GDP is when GDP is calculated without taking into account PPP5 . If you view the previous two citations, notice that the GDP of The People’s Republic of China is given for 2009 as 4,908,982 million USD (nominal) and 8,765,240 million USD (PPP) by the International Monetary Fund. This striking difference is apparently largely due to the fact that China ‘pegs’ its currency at a specific value compared to the USD. Part of their motivation to do this is to ensure that their largest export market, the United States, can buy goods from them at a consistent price. The effect on nominal vs PPP GDP for China is drastic, with the nominal value being only about 56% of the PPP value.