GDP per capita is a perfect measure of economic well-being for any nation, wherein it gives average income and productivity. Calculated by dividing the GDP in that particular country by the population, it gives a tally of economic output per person. This is a key metric in comparing the performance of countries economically and the living standards.
Real GDP Per Capita Meaning
Real GDP per capita refers to the economic output per person adjusted for inflation, providing a clearer picture of economic growth over time. Unlike nominal measures, it reflects changes in price levels and maintains comparability across periods.
Real GDP per capita emphasizes improvement in productivity and growth along with population changes. For example, an increase in real GDP per capita signifies economic development, not just because of inflation or a surge in population. The tool is used to assess the economic soundness of a country and to design appropriate policies for long-term growth.
GDP Per Capita Formula
GDP per capita is sometimes used in combination with GDP to calculate a country’s wealth and to compare a country’s production to that of other countries on a global scale. The GDP per capita formula is a straightforward yet profound representation of economic prosperity:
Where:
- GDP measures the total value of goods and services produced within a country.
- Population represents the total number of residents.
How to Calculate GDP Per Capita?
To calculate the GDP per capita, the real GDP is taken into account instead of the nominal GDP, as the real GDP includes the inflation rate. Therefore, it can be used to compare across years.
Steps to Calculate:
- Get GDP Data: Use data from government reports or institutions such as the World Bank.
- Adjust for Inflation (Optional): To get real GDP per capita, deflate the level of GDP with the help of a GDP deflator.
- Determine Population: Use census or demographic information to determine the total population.
- Calculate the With Formula: Divide the GDP by the population to get the GDP per capita.
Example:
Suppose Country X has a GDP of $500 billion and a population of 50 million.
This implies each individual contributes $10,000 to the country’s GDP on average.
What is Per Capita Income?
Like GDP per capita, per capita income is a metric that measures the average income earned by every individual in a particular region. Calculated as the total income of a population divided by its number. It represents economic well-being and does not include activities like household labor. These activities are non-market.
Per capita income plays a very critical role in determining levels of poverty, designing welfare policies, and assessing income distribution. For instance, a high per capita GDP with low per capita income may show a situation of income inequality.
Example of GDP Per Capita
Consider two countries, A and B:
- Country A: GDP = $1 trillion, Population = 50 million.
- Country B: GDP = $2 trillion, Population = 150 million.
Calculation:
- Country A:
- Country B:
Although Country B has a larger GDP, Country A has a higher GDP per capita, indicating better average living standards.
GDP Per Capita Formula FAQs
What does GDP per capita measure?
GDP per capita measures the average economic output or income per person, reflecting living standards.
How does GDP per capita differ from per capita income?
GDP per capita assesses economic output, while per capita income focuses on average personal earnings.
Why is real GDP per capita important?
It adjusts for inflation, providing a true measure of growth and economic well-being over time.
Can GDP per capita determine wealth distribution?
No, it doesn’t show income distribution. It needs supplementary measures like the Gini coefficient.
What is the GDP per capita formula?
GDP per capita is calculated as: GDP/ GDPPopulation
