Question

Choose three countries of your choice and Canada and compare their economies with each other based on key economic indicators like GDP, Inflation rate etc. Which economy do you think is doing better than the other?

Answer 1

Since GDP is measured in a country’s currency, in order to compare different countries’ GDPs, we need to convert them to a common currency.

One way to compare different countries' GDPs is with an exchange rate, the price of one country’s currency in terms of another.

GDP per capita is GDP divided by population.

First, the GDP of a country is measured in its own currency—the United States uses the US dollar; most countries of Western Europe use the euro; Japan uses the yen; and Mexico uses the peso. Because of this, comparing GDP between two countries requires converting to a common currency.

A second issue is that countries have very different numbers of people. For instance, the United States has a much larger economy than Mexico or Canada, but it also has roughly three times as many people as Mexico and nine times as many people as Canada. So, if we are trying to compare standards of living across countries, we need to divide GDP by population.

To calculate GDP per capita, we start with the formula below.

GDP per capita is obtained in two steps:

Make sure your GDP and population numbers are in the same units. In our example, GDP is currently in billions, but population is in millions. We'll need to divide GDP by 1000 so it has the same units as population.

Divide GDP by population.

Once you've done the calculations for each of the countries yourself, you can check your work against the fourth column of the table.