Question

In: Economics

What is the difference between GDP and GDP per capita? When and why would an economics...

What is the difference between GDP and GDP per capita? When and why would an economics what to use GDP vs GDP per a capita. In the example below let’s say that the economy’s real GDP is $50,000 in year 1 and $55,000 in year 2. What is the growth rate of its GDP? Assume that population was 100 in year 1 and 105 in year 2. What is the growth rate in GDP per capita?

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Solutions

Expert Solution

What is the difference between GDP and GDP per capita?

GDP: Market value of the final goods and services in total manufactured by the nation in a given period within the national boundaries.

GDP per capita: GDP divided by population gives GDP per capita. It gives a picture of presumed distribution (and not actual distrbution) of GDP among the people of the nation.  

When and why would an economics what to use GDP vs GDP per a capita.

GDP is a generalized variable that just tells the size of the economy. GDP per capita is more relevent because it depicts what share of GDP is available to its people. GDP per capita is a more accurate measure to reveal the true income distribution of GDP.

In the example below let’s say that the economy’s real GDP is $50,000 in year 1 and $55,000 in year 2. What is the growth rate of its GDP?

Growth rate of GDP during the period = (55000 - 50000)*100/50000 = 10%.

Assume that population was 100 in year 1 and 105 in year 2. What is the growth rate in GDP per capita?

GDP per capita in year 1 = GDP/Population = 50000/100 = 500. In year 2 GDP per capita = GDP/population = 55000/105 = 523.8095

Growth rate of GDP per capita = (523.8095 - 500)*100/500 = 4.762%.


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