Publication of the International Monetary Fund finally report on the outlook for the global economy in 2014, issued in October, according to the base report data, amounted to estimates of GDP at current prices (quantities produced final goods and services in that year multiplied by the market price of goods and services) to China to those in 2014 about 9.469 trillion dollars, while the US GDP which is estimated at current prices estimated at 17.416 trillion dollars, which means that China's GDP at current prices represents about 54.4 per cent of the US GDP only.
On the other hand, the Fund expects that the GDP of China up in 2019 to 15.518 trillion dollars, while the expected US GDP growing at current prices to 22.174 trillion dollars in the same year, which means that Chinese GDP, until the current high growth rates, It is not expected to exceed 70 per cent of US GDP in 2019, and then the talk that China's economy will exceed the US economy in this decade is not true, according to these forecasts for GDP in both countries at current prices.
However, the prospects for the last WEO database have loaded a surprise to all observers, it is that by using the entrance PPP Purchasing Power Parity PPP, the Chinese economy has turned into the largest economy in the world, and even exceed, for the first time in modern history the US economy size. In exchange for the US GDP in 2014, which is equal to 17.416 trillion dollars, Chinese GDP estimate of PPP 17.632 trillion dollars, which means that China's economy is larger than the US economy by 1.2 per cent. However, over time, the gap between the two economies can accommodate, for example, the IMF predicts that China's GDP up calculations of purchasing power parity in 2019 to 26.867, while the US GDP is limited to 22.174 trillion dollars, that is, the size of the Chinese economy is expected that exceeds the size of the US economy by about 21 per cent in that year.
So what does PPP? And how the Chinese economy has become the largest economy in the world, according to this approach? How it is estimating output using this method? To simplify the idea let's assume that the average Chinese per capita income is ten thousand US dollars a year, while the average US per capita income is ten thousand dollars a year, or ten times the average per capita income in China. If the general price level and one in both countries, and the purchasing power of the dollar in the two-state one, in the sense that the amount of goods and services that can be obtained one dollar in both China and the US one, it means that the individual in China Bdechlh this can get ten the quantity of goods and services that can be bought by the American Bdechlh in both countries, while the US can get ten times the goods and services that can be bought by the Chinese in the two countries.
Now, let's assume that the average goods and services prices in China are denominated in dollars is half the average prices in the United States, it means that China's per capita average income of a thousand dollars can get twice the goods and services obtained by the American in America the same amount, that is, using the entrance tie purchasing power, the average real income of the American people is not equal to ten times the per capita income in China, but is equal to five times only, although it is nominally up the American per capita income to ten times China's per capita income in the previous example, due to price differences in the two countries.
According to the purchasing power parity is used coefficient for conversion we can that we are comparing the groups of goods and services that make up the GDP of the countries, where tells us this factor on the number of dollars that should we need China to buy goods as compared to the United States, to simplify the account I suppose the way that cinema ticket costs five dollars in the United States, while costing three dollars in China, meaning that the purchasing power parity between China and the United States for the price of this service is 3/5 = 0.6, meaning that Chinese spend 60 percent of what Americans spend to get this service, on the contrary, the conversion factor for purchasing power parity is 1.67, meaning that Americans spend 1.67 twice what is spent by the Chinese to get the same service, which means that prices in America for this item more than 67 per cent on the price in China, if we have re-GDP expense Chinese from this service, taking into account the cost variance obtained, we get to a more realistic GDP of China for this service to the dollar appreciated.
Note that using purchasing power parity is compared to GDP and the components of spending by the unified currency so that the comparison between countries by size using more reflective of the force represented by each economy compared to other economies in the world's approach, by diverting spending on various commodity groups from the local currency a common currency and not, for example, the dollar, in order to facilitate comparisons between countries, and so we are if we take the goods and services the prices differences between both China and the United States become China's economy is the largest in terms of the size of the United States of PPP, this of course does not imply that per capita Chinese of the largest share of the US per capita income, there is a vast difference between the two is the difference between the numbers of the population clearly.
But why resort to the International Monetary Fund, such as this method of comparison between the GDP of different countries? The problem is, as explained in the real differences in prices as well as currency exchange rates, when exchange rates do not reflect the real value of the currency, the resulting measurements using an international currency such as the dollar does not reflect the true value of the output of the countries of the world, for example China has always been keen on the currency is weak against the major currencies, particularly the US dollar, and for commercial purposes, that is, so as to maintain a cheap currency to the dollar, and even be able to maintain high competitiveness against its trading partners such as the United States. If we assume that the renminbi Chinese resident undervalued by 25 per cent, it means that we must raise our calculated GDP value in China by 25 per cent, in order to reflect the true value of the Chinese currency, so the PPP becomes useful in identifying the real value of output in the world if the exchange rate were not among the currencies of the non-resident soundly.
PPP, then turning the Chinese economy into the world's largest economy in the world, but that the gap between him and the second-largest economy, a widening of the US economy over time.
On the other hand, the Fund expects that the GDP of China up in 2019 to 15.518 trillion dollars, while the expected US GDP growing at current prices to 22.174 trillion dollars in the same year, which means that Chinese GDP, until the current high growth rates, It is not expected to exceed 70 per cent of US GDP in 2019, and then the talk that China's economy will exceed the US economy in this decade is not true, according to these forecasts for GDP in both countries at current prices.
However, the prospects for the last WEO database have loaded a surprise to all observers, it is that by using the entrance PPP Purchasing Power Parity PPP, the Chinese economy has turned into the largest economy in the world, and even exceed, for the first time in modern history the US economy size. In exchange for the US GDP in 2014, which is equal to 17.416 trillion dollars, Chinese GDP estimate of PPP 17.632 trillion dollars, which means that China's economy is larger than the US economy by 1.2 per cent. However, over time, the gap between the two economies can accommodate, for example, the IMF predicts that China's GDP up calculations of purchasing power parity in 2019 to 26.867, while the US GDP is limited to 22.174 trillion dollars, that is, the size of the Chinese economy is expected that exceeds the size of the US economy by about 21 per cent in that year.
So what does PPP? And how the Chinese economy has become the largest economy in the world, according to this approach? How it is estimating output using this method? To simplify the idea let's assume that the average Chinese per capita income is ten thousand US dollars a year, while the average US per capita income is ten thousand dollars a year, or ten times the average per capita income in China. If the general price level and one in both countries, and the purchasing power of the dollar in the two-state one, in the sense that the amount of goods and services that can be obtained one dollar in both China and the US one, it means that the individual in China Bdechlh this can get ten the quantity of goods and services that can be bought by the American Bdechlh in both countries, while the US can get ten times the goods and services that can be bought by the Chinese in the two countries.
Now, let's assume that the average goods and services prices in China are denominated in dollars is half the average prices in the United States, it means that China's per capita average income of a thousand dollars can get twice the goods and services obtained by the American in America the same amount, that is, using the entrance tie purchasing power, the average real income of the American people is not equal to ten times the per capita income in China, but is equal to five times only, although it is nominally up the American per capita income to ten times China's per capita income in the previous example, due to price differences in the two countries.
According to the purchasing power parity is used coefficient for conversion we can that we are comparing the groups of goods and services that make up the GDP of the countries, where tells us this factor on the number of dollars that should we need China to buy goods as compared to the United States, to simplify the account I suppose the way that cinema ticket costs five dollars in the United States, while costing three dollars in China, meaning that the purchasing power parity between China and the United States for the price of this service is 3/5 = 0.6, meaning that Chinese spend 60 percent of what Americans spend to get this service, on the contrary, the conversion factor for purchasing power parity is 1.67, meaning that Americans spend 1.67 twice what is spent by the Chinese to get the same service, which means that prices in America for this item more than 67 per cent on the price in China, if we have re-GDP expense Chinese from this service, taking into account the cost variance obtained, we get to a more realistic GDP of China for this service to the dollar appreciated.
Note that using purchasing power parity is compared to GDP and the components of spending by the unified currency so that the comparison between countries by size using more reflective of the force represented by each economy compared to other economies in the world's approach, by diverting spending on various commodity groups from the local currency a common currency and not, for example, the dollar, in order to facilitate comparisons between countries, and so we are if we take the goods and services the prices differences between both China and the United States become China's economy is the largest in terms of the size of the United States of PPP, this of course does not imply that per capita Chinese of the largest share of the US per capita income, there is a vast difference between the two is the difference between the numbers of the population clearly.
But why resort to the International Monetary Fund, such as this method of comparison between the GDP of different countries? The problem is, as explained in the real differences in prices as well as currency exchange rates, when exchange rates do not reflect the real value of the currency, the resulting measurements using an international currency such as the dollar does not reflect the true value of the output of the countries of the world, for example China has always been keen on the currency is weak against the major currencies, particularly the US dollar, and for commercial purposes, that is, so as to maintain a cheap currency to the dollar, and even be able to maintain high competitiveness against its trading partners such as the United States. If we assume that the renminbi Chinese resident undervalued by 25 per cent, it means that we must raise our calculated GDP value in China by 25 per cent, in order to reflect the true value of the Chinese currency, so the PPP becomes useful in identifying the real value of output in the world if the exchange rate were not among the currencies of the non-resident soundly.
PPP, then turning the Chinese economy into the world's largest economy in the world, but that the gap between him and the second-largest economy, a widening of the US economy over time.
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