Japanese GDP in 2010 was 480 trillion yen (U.S. GDP, again, was $14.5 trillion). The exchange rate in 2010 was 87.8 yen per dollar. Contrary to China and India, however, Japan had higher prices than the United States: the price level in Japan (converted to dollars) divided by the price level in the United States was 1.243 in 2010.
(a) What is the ratio of Japanese GDP to U.S. GDP if we don’t take into account the differences in relative prices and simply use the exchange rate to make the conversion?
(b) What is the ratio of GDP in Japan to real GDP in the United States in common prices?
(c) Why are these two numbers different?