What are the two main difficulties that arise in comparing different countries's GDP?

One difficulty in comparing different countries' GDP is accounting for the varying currency exchange rates. GDP is typically measured in a country's local currency, but when comparing GDP across countries, it is necessary to convert the GDP figures into a standard currency such as the U.S. dollar. However, currency exchange rates fluctuate over time, which may affect the GDP comparisons. To minimize the impact of exchange rate fluctuations, one possible approach is to use purchasing power parity (PPP) exchange rates. PPP exchange rates take into account the relative cost of living and the inflation rates of different countries, thus allowing for a more accurate comparison of GDP. However, PPP data can still be impacted by changes in consumer price indices that vary between countries.

Another difficulty in comparing GDP across countries is the difference in population and economic structure. GDP per capita, which is GDP divided by the total population of a country, is a common metric used to facilitate comparisons between countries with different population sizes. However, this metric may not fully capture the differences in economic structure and the standard of living in different countries. For instance, a country with a larger population and lower GDP per capita may have a higher overall GDP but a lower standard of living compared to a smaller, richer country with a higher GDP per capita. Additionally, differences in the economic structure, such as the industry composition and the level of technological advancement, can impact the comparison of GDPs between countries. In conclusion, when comparing different countries' GDP, it is important to take into account the difficulties presented by currency exchange rates and the differences in population size and economic structure. Understanding these challenges can help paint a more accurate picture of the economic well-being of countries being compared.