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Nominal GDP does not take into account differences in the cost of living in different countries. ... To account for the differences in the cost of living between countries, we use the PPP exchange rate for conversion. The PPP exchange rate is the ratio of the currencies' purchasing power.
The difference between GDP nominal and GDP PPP is that GDP nominal reflects the current market prices while GDP PPP is calculated using the concept of purchasing power parity theory. Both these measures assist effective decision making regarding economic growth and other economic conditions that affect countries.
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