Question

4. What is the difference between the growth rate of nominal GDP, growth rate of real GDP and growth rate of real GDP per capita? What are the determinants of the last one? Find out the growth rate of U.S. Real GDP per capita for 1980-2019 and plot them into a graph.

Answer 1

Dear Student,

Please find below answer to your questions

A) Difference between the growth rate of nominal GDP, growth rate of real GDP

The growth rate of real GDP is expressed in terms of goods and services produced in the economy .The growth rate of real GDP per person is calculated by dividing the growth rate of real GDP by total population of the country.

Hence the formula for real GDP per person=Real GDP÷total population of a country.

The growth rate of real GDP - describes the growth rate of GDP in real terms taking inflation rate or prices into consideration. In contrast growth rate of nominal GDP is the result of the former divided by the population number

If the growth rate of real GDP is greater than the g rowth rate of nominal GDP this means that the real GDP grow faster than the population rate, this also means a healthy phenomenon of the economy.

Nominal GDP is the market value of goods and services produced in an economy, unadjusted for inflation. Real GDP is nominal GDP, adjusted for inflation to reflect changes in real output.

Nominal GDP by definition reflects inflation, real GDP uses a GDP deflator to adjust for inflation, thus reflecting only changes in real output. Since inflation is generally a positive number, a country’s nominal GDP is generally higher than its real GDP.

B) Determinant of growth rate of real GDP per capita

1. The Growth in the size of the workforce and growth in the productivity i.e.output per hour worked of that workforce.
2. Either can increase the overall size of the economy but only strong productivity growth can increase per capita GDP and income
3. The real GDP growth reflects a country’s increased output and is not influenced by inflation increasing price level.

C) U.S. Real GDP per capita for 1980-2019

United States GDP per capita

The GDP per capita is obtained by dividing the country’s gross domestic product, adjusted by inflation, by the total population.

Since 1980 to 2019, GDP per capita for USA was lowest as $ 17562.60 & Highest as $ 55809.00, It can be plotted as per shown in below graph.

Source : U.S. Bureau of Economic Analysis

Observation : Q2 2020: 52,448 (+ more) Updated: Sep 30, 2020

Units : Chained 2012 Dollars, Seasonally Adjusted Annual Rate

Frequency: Quarterly

--------------

Hope my answer have cleared all your queries, I really appreciates your positive feedback !!

Thank You !!

--------------