Real GDP Per Capita
- Economic development is the sustainable increase in living standards for a country, typically characterised by increases in life span, education levels, & income
- There are many measures of living standards
- Single indicators e.g. real gross domestic product/capita, number of doctors/1000 people; infant mortality rate; % of the population with access to clean drinking water
- Composite indicators such as the Human Development Index (HDI)
The Distinction Between Real, Nominal & Per Capita GDP
- In economics, the use of the word nominal refers to the fact that the metric has not been adjusted for inflation
- Nominal GDP is the actual value of all goods/services produced in an economy in a one-year period
- There has been no adjustment to the amount based on the increase in general price levels (inflation)
- There has been no adjustment to the amount based on the increase in general price levels (inflation)
- Real GDP is the value of all goods/services produced in an economy in a one-year period - & adjusted for inflation
- For example, if nominal GDP is $100bn and inflation is 10% then real GDP is $90bn
- For example, if nominal GDP is $100bn and inflation is 10% then real GDP is $90bn
- Real GDP per capita = rGDP / the population
- It shows the mean wealth of each citizen in a country
- This makes it easier to compare standards of living between countries:
- For example, Switzerland has a much higher GDP/capita than Burundi
- It is useful to know the rGDP/capita, however it has the following disadvantages
- It is a single indicator so provides very limited information
- It is an average so there may be significant poverty in many parts of a country that has a high rGDP/capita
Exam Tip
When an exam question uses the phrase 'at constant prices' it is referring to real GDP. For example, a question may read, 'Explain what is meant by a rise in GDP at constant prices'. This requires you to define real GDP and then explain the rise.