what GDP PPP means
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For ELI5 purposes, PPP (purchasing power parity) is a cost-of-living adjustment. Nominal (unadjusted) GDP looks at productivity or output as if that output was being *sold* globally, but it doesn’t describe how much that output can *buy* locally.
To calculate PPP adjustments, economists calculate the price of a “basket” of goods and services – thousands of them – in each country. Then, the nominal (unadjusted) GDP figures are divided by these cost ratios. Costlier countries will have less of a GDP advantage when adjusted for PPP. For example, Norway’s nominal GDP per person is roughly 30% higher than the US’s, but their basket of goods & services costs 28% more. As a result, their PPP-adjusted GDP per person is only 2% higher.
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