Which is the world's largest economy, China or the United States? As is usual in the field of economics, “It depends.” It depends on the methods used to estimate the size of an economy and to compare one economy to another. Despite modern discussions on refining the calculation of gross domestic product (GDP), the standard measure of an economy’s size and performance, to be more inclusive of economic factors that have been ignored to date, such as environmental and natural resource depletion, there is no commonly accepted alternative to GDP. There are, however, at least two commonly used approaches to cross-country comparisons of GDP.
Method 1 - Current exchange rates. The GDP of two economies measured in each country’s national currency can be compared by converting the value of each GDP into a common third currency, such as US dollars, based on the current exchange rate. While the more popular approach, it is flawed. Official exchange rates differ from the real value of national currencies because currencies are not only exchanged to buy and sell goods and services in trade but are also used as investment instruments. As investment tools, currency valuations thus fall prey to speculation and irrational expectations of investors versus pure market fundamentals that are the basis for official rates.
Example. Based on the current ¥/$ exchange rate, if a bottle of Coca-Cola costs $1 in the United States it would cost ¥6.63 in China. Only, it wouldn't actually cost that much because the real value of the yuan relative to the dollar differes from the official exchange rate.
Method 2 - Purchasing power parity. Alternatively, the values of the national currencies of two economies can be converted to a single international currency — known as international dollars — using purchasing power parities (PPPs). PPPs are essentially the currency conversion rates that eliminate differences in price levels between countries and equalize the purchasing power of different countries. It is calculated as the ratio of the price of the same good in different countries in local currencies.
Example. If a bottle of Coca-Cola costs ¥3.5 in China and $1 in the United States then the PPP for Coca-Cola between these countries is ¥3.5/$1 = 3.5.
If you calculate the PPP for every good and service produced and average the values, you can calculate the PPP for the GDPs between two countries. Let’s return then to the question of whether the US or China has the larger economy. According to the IMF, in 2016, the PPP between China and the US was ¥3.5 per international dollar. As such, China’s GDP of ¥74.6 trillion would be worth $21.3 trillion in the United States (¥74.6/3.5). That’s $2.7 trillion, or nearly 15 percent, more than the US GDP of $18.6 trillion in 2016.
So, to answer the original question, China is the world's largest economy, followed by the United States ... if you compare GDPs based on PPP.
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As per data from the World Bank, global GDP in current prices totaled around $75.5 trillion in 2016. In 2017, world GDP is forecasted to expand to $79.3 trillion according to IMF’s forecast. GDP ranking by country in 2017 presented on this page shows the extent to which different countries contribute to the world’s economy. Top 5 countries by GDP in 2017 are the United States, China, Japan, Germany, and France which are the largest economies in the world constituting more than a half of the Gross World Product (GWP). In the ranking by real GDP, the same countries hold the top spot. In 2017, United States is in the first position in the...
The Governing Council assesses economic and monetary developments and takes its monetary policy decisions every six weeks. The monetary policy decision is explained in detail at a press conference held every six weeks. The President, assisted by the Vice-President, chairs the press conference. Event Holder: European Central Bank Source: OECD Key Short-Term Economic Indicators
The visualizations on this page provide an access to the GDP data by country from the IMF's World Economic Outlook (WEO). The table shows the data on the GDP measured in current prices as well as based on purchasing power parities (PPP). Charts at the right visualize country's GDP presented in the table to enable a visual analysis of GDP dynamics. Take a look at other GDP-related dashboards: GDP: GDP by country from the World Bank | GDP by country from IMF | World GDP ranking | World GDP GDP per capita: GDP per capita by country from the World Bank | GDP per capita by country from IMF | World GDP per capita ranking See also: G20...