HOW fast is the global economy growing? Is China contributing more to global growth than the United States? Is the average person richer in Canada or in Switzerland? These types of questions are of great interest to economists and others, and at first blush it appears reasonable to assume that each has a clear-cut answer. But, as with many things in economics, the reality is different.
To answer the questions, one must compare the value of the output from different countries. But each country reports its data in its own currency. That means that to compare the data, each country’s statistics must be converted into a common currency. However, there are several ways to do that conversion and each can give a markedly different answer. “Back to Basics” explains the difference between the two main methods of making international comparisons of economic variables.