In: Economics
The rate of growth of nominal GDP is 10 percent. The rate of inflation rate is 5 percent. The rate of growth of the population is 1%. What is the rate of growth or real GDP per capita? (b) What is the problem with using GDP (and GDP per capita) as a measure of economic performance and welfare?
(a)
Real GDP (RGDP) = Nominal GDP (NGDP) / Price level
RGDP per Capita = RGDP / Population = NGDP / (Price level x Population).
Therefore,
Growth in RGD per capita = Growth in NGDP - Growth in price level Inflation) - Growth in Population
= 10% - 5% - 1%
= 4%
(b) GDP is insufficient as a measure of economic performance and welfare because of following reasons.