Macroeconomics
Real GDP per capita calculates the share of an economy’s output per individual as follows: Real GDP per capita = The percentage change in the real GDP per capitabetweentwoconsecutiveyearsthenallowsforthe calculation of the economic growth rate . × 100 2− 1 1 Forexample,acountrythatrecordedarealGDPpercapitaof$6,000in2021and$6,500in2022has witnessed an economic growth rate of [(6,500 − 6,000)/6,000] × 100 ≈ 8.33%. Economic growth rate =
But why not use real GDP to measure economic growth? Here’s an example to illustrate the difference.
SupposeacountryrecordedarealGDPfgureof$3billionin2022.Whatdoesthattellusaboutpeople’s standards of living? Not much.
Now, imagine thecountryhasapopulationof10millionpeople.TherealGDPpercapitawouldthenbe calculated as follows: $3 billion/10 million people = 300. This means that each personinthiscountry represents $300 of the country’s total production in 2022, which is relatively low. Now,considerascenariowherethecountryhasasmallerpopulationof1millionpeople.TherealGDPper capita would then be $3,000, a relatively higher individual contribution to output. In other words, real GDP per capita represents the GDP or production per person. It serves as an indicator of the general welfare and standard of living of the population , as well astheeconomic developmentofthecountryincomparisontoothereconomies.Aseconomicgrowthincreases,realGDP percapitaalsoincreases,therebyimprovingpeople’sstandardsoflivingbyachievingahigheroutputper person. GDP per Capita as a Measure of Prosperity: ➔ GDP per capita, as mentioned, measures the economic output of a country on a per-person basis. It is an essential metric for assessingthestandardoflivingandprosperityofanation's residents.
➔ By calculating GDP per capita, we canbetterunderstand how a country'seconomicgrowthtranslatesintotangible benefts for its citizens. It provides insights into the average income and economic well-being of the population.
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