Huff, puff, India will finally be a $2 trillion economy this year

[Abingdonboy]

All the Production in a country is first converted to the equivalent value in the currency of that country & than according to the exchange rate, to the dollar equivalent.

If there is more Inflation than the value of currency decreases since people have to spend more for the same thing.

Again if the currency appreciates than the equivalent dollar value increases & opposite for the currency depreciation.

But in Real terms you are worse/only slightly better off, right?

 

[Chinese-Dragon]

never understood how the inflation adds to the economy ?

Let's say an apple is worth $1.

Now inflation comes, and pushes up the price to $2.

The "nominal value" has now doubled. But in fact, the "real" value hasn't changed, since there is still only one apple.

That's why in order to get "real" values, we subtract the effects of inflation.

 

[arp2041]

But in Real terms you are worse/only slightly better off, right?

Sorry?? Please rephrase your question.

EDIT: Yes, real value is LESS than Nominal value.

 

[Abingdonboy]

Also I have never understood why nominal GDP is used as the go-to indicator. GDP PPP is surely the best way of accurately and fairly compiling such lists and rankings?
@arp2041 @Chinese-Dragons

 

[Sergi]

Let's say an apple is worth $1.

Now inflation comes, and pushes up the price to $2.

The "nominal value" has now doubled. But in fact, the "real" value hasn't changed, since there is still only one apple.

That's why in order to get "real" values, we subtract the effects of inflation.

@CD when it comes to calculate GDP the values of products and services are added with reference to bench year to avoid the effect of inflation.

Inflation is not always bad
1. Creeping inflation: ok
2. Walking inflation: good
3. Running inflation: bad

 

[Chinese-Dragon]

@CD when it comes to calculate GDP the values of products and services are added with reference to bench year to avoid the effect of inflation.

That's right. They call it the GDP deflator.

Inflation is not always bad
1. Creeping inflation: ok
2. Walking inflation: good
3. Running inflation: bad

Exactly. Ideally, a low amount of inflation every year is optimal.

High inflation and negative inflation (deflation) are the worst. Stagflation or hyperinflation are the very worst.

 

[arp2041]

Also I have never understood why nominal GDP is used as the go-to indicator. GDP PPP is surely the best way of accurately and fairly compiling such lists and rankings?
@arp2041 @Chinese-Dragons

GDP (PPP) is only the indicator that says what is the purchasing power of the SAME dollar spent in say US or say India.

But it is not a good indicator to compare a country Globally.

As you know b'coz of trade, investments etc. in other countries, PPP doesn't matter (as it is for domestic use only).

So, for making a level playing field, we use Nominal GDP.

BTW, i want to add one more point to the real GDP. If we have lesser inflation than last year or say we have a deflation, than real GDP growth rate can be greater than the nominal GDP growth rate. But as we know the case is (almost) always reverse, so we normally have GDP nominal rate > GDP real rate.

 

[Sergi]

That's right. They call it the GDP deflator.



Exactly. Ideally, a low amount of inflation every year is optimal.

High inflation and negative inflation (deflation) are the worst. Stagflation or hyperinflation are the very worst.

Current indian bench mark or base year is 2006. It was the time of boom. So I guess this news is ok by me.

 

[Chinese-Dragon]

Also I have never understood why nominal GDP is used as the go-to indicator. GDP PPP is surely the best way of accurately and fairly compiling such lists and rankings?
@arp2041 @Chinese-Dragons

As arp2041 said, PPP is mostly relevant within the domestic economy. It doesn't change anything if you are trading overseas, in which case your currency is worth the current exchange rate (which makes nominal GDP more relevant).

Both nominal and PPP are flawed measurements of GDP. Personally I like to think that true GDP is somewhere in between nominal and PPP GDP.

 

[Abingdonboy]

GDP (PPP) is only the indicator that says what is the purchasing power of the SAME dollar spent in say US or say India.

But it is not a good indicator to compare a country Globally.

As you know b'coz of trade, investments etc. in other countries, PPP doesn't matter (as it is for domestic use only).

So, for making a level playing field, we use Nominal GDP.

BTW, i want to add one more point to the real GDP. If we have lesser inflation than last year or say we have a deflation, than real GDP growth rate can be greater than the nominal GDP growth rate. But as we know the case is (almost) always reverse, so we normally have GDP nominal rate > GDP real rate.

I was just about to say that in the context of comparing,say, India and Russia, one should use Real GDP measure as of Russia's nominal GDP growth has been caused by inflation and not a representative increase in activity then nominal GDP can hide some serious structural issues in an economy and is only telling part of a story.

 

[arp2041]

Both nominal and PPP are flawed measurements of GDP. Personally I like to think that true GDP is somewhere in between nominal and PPP GDP.

Again there is a FLAW in this theory.

As you know, a high percentage of an economy (esp. developing economy such as India) is made up of Black Economy (Swiss Banks et al).

This is not included while calculating the nominal or PPP GDP, so IMHO, the REAL GDP is even more, Agree??

 

[Luffy 500]

2tn $$ GDP for a country of 1bn+ people isn't something out of the world. It is still a agro based economy and may be the only tn $$ economy that is agrian. In that sense its unique.

 

[Abingdonboy]

Again there is a FLAW in this theory.

As you know, a high percentage of an economy (esp. developing economy such as India) is made up of Black Economy (Swiss Banks et al).

This is not included while calculating the nominal or PPP GDP, so IMHO, the REAL GDP is even more, Agree??

Leaving aside the Swiss banks, devloping nations like India will alway shave a significant informal economy that goes untaxed and unaccounted for and thus and GDP figure is not going to be representative of the true economic activity in an economy.

 

[arp2041]

I was just about to say that in the context of comparing,say, India and Russia, one should use Real GDP measure as of Russia's nominal GDP growth has been caused by inflation and not a representative increase in activity then nominal GDP can hide some serious structural issues in an economy and is only telling part of a story.

It all depends on the GDP Indicator which you refer to, in some you will find India ahead & in some you will find Russia.

But lets just stick to the Nominal GDP since this is the indicator produced by the world financial organizations such as WB or IMF.

As i said, if it's not perfect, it is the CLOSEST to make a level playing field.

 

[Sergi]

2tn $$ GDP for a country of 1bn+ people isn't something out of the world. It is still a agro based economy and may be the only tn $$ economy that is agrian. In that sense its unique.

2tn $$ GDP for a country of 1bn+ people isn't something out of the world. It is still a agro based economy and may be the only tn $$ economy that is agrian. In that sense its unique.

Vaulter if you must know the Primary sector of indian econmy add 14.4 % of the GDP
And rest come from remaining sectors. Hope you can calculate
And if they tech economics in your slums you will understand primary sector consists of mining , fishing and agriculture.
So try avoid commenting on something you don't know