Often used to rank countries to establish a fair system of aid payments. It's my assignment. This has been a guide to what is Real GDP Per Capita and its definition. GDP per capita is the gross domestic product of a country, as divided equally between each citizen (capita)Advantage - represents a country's economic productivity and the advancement of its industryAdvantage - easy to rank and measureDisadvantage - doesn't include the contributions of the informal economy (70% in African cities)Disadvantage - can hide inequalities within a nation (e.g… Is it time to end our fixation with GDP and growth? Although the GDP per capita of a country may be very high, it may be the case that 10 percent of the country earn millions of times more than the other 90 percent of the country's inhabitants, who earn extremely low … Disadvantages. The reason behind the importance of environmental indicators. This means that there is 20 times as much money per person in the UK compared to in India 2. Registered office: International House, Queens Road, Brighton, BN1 3XE. It is also a fairly decent indicator of average standard of living in a country. The formula for the calculation of the Real GDP per capital is as follows: Real GDP Per Capita formula = Real GDP / Population. With the Real GDP per capita, the average annual income is derived from the people of the country, but it does not give any indication on the spending power of those people of the country. Disadvantages include government spending as a positive portion of GDP along with natural disasters and the fact that it does not take into account work done outside of a monetary transaction (housewife cleaning the house and making dinner for example). Gross National Income figures are also closely correlated with social development – generally speaking the higher the GNI per capita, the … By closing this banner, scrolling this page, clicking a link or continuing to browse otherwise, you agree to our Privacy Policy, Christmas Offer - All in One Financial Analyst Bundle (250+ Courses, 40+ Projects) View More, Investment Banking Training (117 Courses, 25+ Projects), 117 Courses | 25+ Projects | 600+ Hours | Full Lifetime Access | Certificate of Completion. Real GDP Per Capita is used for comparison of the living standard amongst the countries over the time which reflects the feelings of all the citizens about how prosperous is their country. (Source: John Sloman, 2006) The biggest advantage of GDP per capita being used as an indicator of the standard of living is that GDP per capita is measured widely, consistently, and frequently. Answer and Explanation: Become a Study.com member to unlock this answer! Hides extremes; Doesn't say how wealth is spread; Doesn't take the cost of living into account; Only takes money into account; Illegal workers and volunteers aren't included; Evaluation. For example in a country, Real GDP for the year 2018 is $ 10 trillion and during the same year, the total population of the country is 250 million i.e., there are 250 million people in the country during the year 2018. Due to this Real GDP per capita does not tell the exact details of the average income of the country per citizen in a year. Real GDP Per Capita is the resulting value arrived at by dividing the entire economic output of the whole country by the total number of people and after adjusting any impact of the inflation prevailing in the country for that period. Here we discuss the formula to calculate Real GDP per capita along with an example, advantages, and disadvantages. Here real GDP can't measure Standard of living. However, proper analysis of the entire process has delineated certain limitations of GDP per Capita in Measuring Growth. It refers to the measurement of total economic output in a country during a specified period divided by the total number of population of the country during the same period and considers the inflation prevailing at that point of time which helps in measuring the actual level of increase in the goods and services during the period of time in the company. There are several "disadvantages" if that's what you want to call them. The GDP per capita the UK, on the other hand is $35 100 and was 36 th place in the world. Although GDP is easy to compare, it shows which countries are rich and poor, not which countries need specific funding from the UN. Sweden ISN'T Socialist! While calculating the Real GDP per capita, inflation prevailing at that point of time is also considered which helps in measuring the actual level of increase in the goods and services during the period of time in the company as it excludes any impact which arises due to the rising of the prices in the country. [Year 12 Enrichment Task] 21st May 2020. Thus unless national income is evenly distributed, per capita income cannot serve as a … Calculate the Real GDP per capita of the country under consideration for the year 2018. For example, Gross Domestic Product (GDP) does not account for volunteer work, quality of goods, and GDP can be raised by a disaster. In addition, it is often used to rank countries in order to issue aid payments. When country GDP per capita is calculated, it is done by dividing the nominal or real GDP by the country’s population. A rise in th GDP per capita generally means economic growth and a rise in standard of living for many of the people in the country. Show more. Using GDP as an indicator of economic welfare and performance has its’ advantages and disadvantages. You can learn more about accounting from the following articles –, Copyright © 2020. Inaccurate Data GDP only takes reported consumption into account. Increases inequality: Sometimes spending more on gross national investments (GNI) per capita can hide the widespread inequality within the country. So wealth distribution cannot be seen with the help of the Real GDP per capita. Is national happiness going to be a better way to measure economies than GDP, in 2020? One of the disadvantages if the real GDP per capita is that it does not take into consideration the cost of living of the person of their country into account while calculating it. The main advantages of using GDP as a measure is that you can gauge the overall output of your domestic factories. », Economics Assignment . GDP per capita is a measure that results from GDP divided by the size of the nation's overall population. Advantages and Disadvantages of Globalization. This has disenchanted economists about its efficacy as a true index of development and welfare. GDP can be expressed in two terms, real GDP and nominal GDP. It does not take into consideration cost of living of the person of their country, does not tell that how the wealth is spread in the country, does not take into consideration the details of earnings of the illegal workers in the country as well as the people who are working voluntarily in the country and does not give any indication on the spending power of the people of the country. One can tell from a country's GDP per capita how it performs economically relative to other countries and how it is performing overtime. 1st advantage China has a more developed than in many developing countries and the balance of trade, China's much faster rate than India has been since the 1950s, manufacturing growth. While this approach has advantages, there are also many criticisms on GDP as an indicator of standard of living or welfare. There are many advantages and disadvantages for GDP per capita. 18th June 2019. CFA® And Chartered Financial Analyst® Are Registered Trademarks Owned By CFA Institute.Return to top, IB Excel Templates, Accounting, Valuation, Financial Modeling, Video Tutorials, * Please provide your correct email id. finding it a bit difficult. The resulting value by dividing the entire economic output of the whole country by the total number of people and after adjusting any impact of the inflation prevailing in the country for that period is known as Real GDP Per Capita. Advantages of using GDP/GNP as an indicator: Disadvantages of using GDP/GNP and an indicator: A useful figure for comparing countries. In fact, "standard of living" and "per capita GDP" have come to be virtually synonymous. Per capita income is an average and this average may not represent the standard of living of the people, if the increased national income goes to the few rich instead of giving to the many poor. This could be food, doctors, clean water or teachers, so the country can develop once the educated people start working. Three Advantages of using GDP/ GNP/ GNI as an indicator of development 1. GDP is a well-respected, clear assessment of the wealth of a nation’s economy. Per-capita GDP is a reasonable measure of a country's standard of living. It makes the comparison easy as the country’s population as a whole is taken into account while calculating the Real. Let us turn to some illustrations now to show how national income and related aggregates can be calculated from given data. Similarly, while GDP per capita is not a country’s measure of personal income, it can be used to make observations about it. |~ », Easy to compare as the population of a country is taken into account, Gives good figures, so world leaders know where to spend money, Good indicator to show provision of services, Doesn't take the cost of living into account, Illegal workers and volunteers aren't included. Student videos. Globalization gives us many advantages and disadvantages. GDP per capita is an average, and thus ignores the distribution of incomes in a given country. Limitations and drawbacks include the following: One of the disadvantages if the real GDP per capita is that it does not take into consideration the cost of living of the person of their country into account while calculating it. Please i need some help », Can I please get some hand here? Over time, consumers could spend more replacing cheap goods than they would have if they had bought higher-quality goods in the first place, and GDP would grow as a result of waste and inefficiency. There are several different advantages which are as follows: Limitations and drawbacks include the following: Real GDP per Capita helps in measuring almost everything that the country creates in the entire year and is used for comparison of the living standard amongst the countries over the time which reflects the feelings of all the citizens about how prosperous is their country but at the same time it does not take into consideration cost of living of the person of their country, does not tell that how the wealth is spread in the country, does not take into consideration the details of earnings of the illegal workers in the country as well as the people who are working voluntarily in the country and does not give any indication on the spending power of the people of the country. More on gross national investments ( GNI ) per capita in Measuring Growth less developed countries inequality Sometimes. 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