#WHAT IS THE DIFFERENCE BETWEEN ETHERNET FRAME AND PPP FRAME MAC#
For example, the price of a Big Mac in India is Rs.178. (In the same way, we had done for coffee). It compared the price of the Big Mac burgers across countries.
The Economist invented a Big Mac Index as a light-hearted guide to check whether currencies are at their correct level as per the PPP theory. This is called the theory of purchasing power parity (PPP). There is a theory which states that: In the long run, the market exchange rates will gradually converge to the PPP exchange rate. It is used as an indicator of living standards. It measures the average income of a country. GDP per capita is calculated by dividing the GDP by the total population of a country. However, India ranks 141st in Nominal GDP per capita and 123rd in GDP per capita at PPP. India is the world’s sixth-largest economy by nominal GDP and the third-largest by PPP GDP. In reality, the price of a basket of goods and services is used to determine purchasing power. In our example, we have used coffee to compare purchasing power. Hence, as per PPP, 1$ = Rs.20 and not Rs.64.76. Example: You can buy a cup of coffee for 1$ in the US. The PPP exchange rate is the ratio of the currencies’ purchasing power. To account for the differences in the cost of living between countries, we use the PPP exchange rate for conversion.
Thus, you can have a higher standard of living in India with the same income you earn in the US. This is because the purchasing power is more in India as the cost of living is low. But, in India, you can buy a cup of coffee as well as a grilled sandwich for 1$ or Rs.64.76. Let’s say you can buy a cup of coffee in the US for 1$. Nominal GDP does not take into account differences in the cost of living in different countries. Purchasing Power Parity (PPP): The conversion is done using the PPP exchange rate.The resultant figure is Nominal GDP expressed in dollars. The Nominal GDP will be converted accordingly. Let’s say the market exchange rate is 1$ = Rs.64.76. Market exchange rate: The conversion is done using the market exchange rate.This conversion can be done through two methods: The common currency is usually US dollars. Therefore, to compare the GDP of different countries, their GDP is converted into a common currency. India’s Nominal GDP is reported in rupees. The GDP figure is calculated and reported in a country’s own currency. (Read: Changes in Methodology of Calculating GDP) Difference between Nominal and PPP GDP In short, Real GDP is nominal GDP adjusted for inflation. It is calculated to eliminate the effect of price rise in GDP. Real GDP is also known as GDP at constant prices. India’s GDP in the year 2016-17 was estimated to be Rs.12,165,481 crores at 2011-12 prices. If we use the current prices of goods and services to calculate GDP, we get N ominal GDP. India’s GDP in the year 2016-17 was estimated to be Rs.1,52,51,028 crores at current prices.īut, to get r eal GDP we use the prices in the base year. The base year for India is 2011-12. You may read: GDP Demystified for a better understanding of GDP. GDP is the total value of all goods and services produced in the economy in a given period of time.
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