Question

1. When we compare GDP per capita across countries, we need to make sure that resources in both countries are measured using the same units. Please concisely describe the process of translating nominal GDP measures across countries into measures of real resources in common units.

2. “Virtually all cross-country income differences observed can be explained by the cross-country differences in capital-per-worker (or per person) ratios.” Discuss the previous statement and please be concise, but precise, in your answer.

Answer 1

Ans.

1.

In order to evaluate an economy’s health, it is often useful to remove the effect of changes in the general price level on GDP because higher (lower) income driven solely by changes in the price level is not indicative of a higher (lower) level of economic activity.

To accomplish this, economists use real GDP, which indicates what would have been the total expenditures on the output of goods and services if prices were unchanged. Per capita real GDP (real GDP divided by the size of the population) has often been used as a measure of the average standard of living in a country.

Per capita real GDP is the real GDP divided by the size of the population, often used as a measure of the average standard of living in a country.

The real growth rate is more informative because it exactly captures increases in output.

Nominal growth, by blending price changes with output changes, is less directly informative about output changes.

In summary, real economic growth is measured by the percentage change in real GDP. When measuring real economic activity or when comparing one nation’s economy to another, real GDP and real GDP growth should be used because they more closely reflect the quantity of output available for consumption and investment.

2.

It is true that , the cross-country income differences observed can be explained by the cross-country differences in capital-per-worker (or per person) ratios to large extent.

Work productivity growth is viewed as a key pointer to survey provincial intensity and a basic driver of change in expectations for everyday comforts. Local everyday environments are brought by proceeded with gains up in labor productivity, alongside an expansion in labor use. Indeed, just economies that figure out how to at the same time support business and productivity growth will expand their gross homegrown item (GDP) per capita and keep up it over the long term. Growth in provincial GDP per capita is separated into the commitment of work productivity growth (here estimated as GDP per specialist) and changes in labor use (estimated as the proportion between work at work environment what's more, populace).