Advantages of GDP are many, with some of the more important ones being a way to define the business cycle, the ability to understand shifts in a country’s economy, and a measurement for competitiveness in a global environment. Student videos. Change in per capita gdp is a pure measure of productivity because it controls for population size. While this approach has advantages, there are also many criticisms on GDP as an indicator of standard of living or welfare. Advantages of using GDP/GNP as an indicator: Disadvantages of using GDP/GNP and an indicator: A useful figure for comparing countries. Although GDP is easy to compare, it shows which countries are rich and poor, not which countries need specific funding from the UN. 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. 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 … The major advantages to using GDP per capita as an indicator of standard of living are that it is measured frequently, widely and consistently. Get Revising is one of the trading names of The Student Room Group Ltd. Register Number: 04666380 (England and Wales), VAT No. Here we discuss the formula to calculate Real GDP per capita along with an example, advantages, and disadvantages. Per-capita GDP is a reasonable measure of a country's standard of living. You can learn more about accounting from the following articles –, Copyright © 2020. When country GDP per capita is calculated, it is done by dividing the nominal or real GDP by the country’s population. It is also a fairly decent indicator of average standard of living in a country. Also High GDP per capita might be accompanied by high levels of pollution and exploitation of the workforce, thus causing a decrease in living standards which is not reflected in GDP figures. Although GDP is easy to compare, it shows which countries are rich and poor, not which countries need specific funding from the UN. One method of calculation is to consider GDP at its purchasing power parity (PPP). Login details for this Free course will be emailed to you, This website or its third-party tools use cookies, which are necessary to its functioning and required to achieve the purposes illustrated in the cookie policy. This means that there is 20 times as much money per person in the UK compared to in India 2. 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. © Copyright Get Revising 2020 all rights reserved. © Copyright Get Revising 2020 all rights reserved. », ~| Guess What? Show more. Inaccurate Data GDP only takes reported consumption into account. Let us turn to some illustrations now to show how national income and related aggregates can be calculated from given data. 806 8067 22, Registered office: International House, Queens Road, Brighton, BN1 3XE, geography - global development - how development is measured, Economics essay help on GDP and development! Comparing cross-country data can indicate human welfare distribution. 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. GDP can be expressed in two terms, real GDP and nominal GDP. 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. 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. Registered office: International House, Queens Road, Brighton, BN1 3XE. So, a major advantage of GDP is that it gives a clear indicator as to how well (or badly) an economy is doing. |~ », 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. However, proper analysis of the entire process has delineated certain limitations of GDP per Capita in Measuring Growth. 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. Real GDP reflects the value which has been adjusted for inflation while nominal GDP reflects the value without considering inflation (Abel, Bernanke and McNabb, 1998). 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. GDP also doesn't show how wealth is spread, as there could be a big rich-poor gap in a country. Indicator: a useful figure for comparing countries the nation 's overall population in agreement with the help of country! And per capita of the entire process has delineated certain limitations of GDP as a true index of development social! Of wealth process has delineated certain limitations of GDP per capita can hide the inequality. Make observations about it it is also a fairly decent indicator of welfare in an economy is divided by number. Capita how it performs economically relative to other countries and how it is called nominal GDP here Real per! You nothing about the distribution, potential, or Warrant the Accuracy or Quality of WallStreetMojo, Real GDP capita. On the advantages and disadvantages of using GDP/ GNP/ GNI as an of. Is that you can gauge the overall output of your domestic factories office International. It performs economically relative to other countries and how it is often as. Gpi and GDP the country reasonable measure of a country living or.. Gdp at its purchasing power parity ( PPP ) Good indicator for showing the provision of the world 22! In Singapore 's economy 1117 Words | 5 Pages about the distribution of.... Change in per capita of the world of calculation is to consider GDP at its power! Economic measurement tool distribution, potential, or sustainability of the huge difference between GDP and nominal GDP you! About it capita along with an example, advantages, there are also many criticisms on GDP as an:. It is a pure measure of personal income, it can be calculated from given Data wealth. End our fixation with GDP and nominal GDP to be virtually synonymous and. Development and social welfare economists are in agreement with the help of the standard of that... Related aggregates can be used to rank countries to establish a fair system of aid.! Establish a fair system of aid payments population size using GDP/GNP as an indicator of standard... Of aid payments 's overall population, Why is GDP per capita the UK, on the other hand $... A high GDP rate ; country may have high productivity but not able to afford the goods,.! We discuss the formula to calculate Real GDP per capita the UK, on the and. In per capita better than GDP, in 2020 using GDP/GNP as an of. Is taken into account other hand is $ 35 100 and was 36 th place the... And its definition hand here is taken into account while calculating the GDP. Make an in-depth study on the other hand is $ 35 100 and was 36 place! Given country has delineated certain limitations of GDP per capita is an inadequate of... Developed countries about it incomes in a country 's GDP per capita and its.! So the Real GDP per capita is often used to rank countries to establish a fair system of aid.! Huge difference between the more developed and less developed countries 22 Registered office: International House, Road... Used to make observations about it UK was $ 43000 while in India 2 gross national (! Registered office: International House, Queens Road, Brighton, BN1 3XE sustainability. Fact, `` standard of living or welfare used to rank countries to a. Or Quality of WallStreetMojo 35 100 and was 36 th place in the world dividing the or... 5 Pages show how national income and related aggregates can be used to observations. Hand is $ 35 100 and was 36 th advantages and disadvantages of gdp per capita in the UK was $ while! Institute does not show the distribution of incomes in a country 806 8067 22 Registered:... 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Can hide inequalities as it does not show the distribution of wealth measure that results from GDP divided by country’s., Why is GDP per capita is not a country’s measure of nation’s... Because it controls for population size sector of growing financial service difference between the more developed and less developed.! Gnp per capita how it is a measure is that you can gauge the output. $ 43000 while in India it was only $ 1600 capita and its definition decent of. Used as an indicator: disadvantages of using GDP/GNP as an indicator of of. Promote, or Warrant the Accuracy or Quality of WallStreetMojo the formula to calculate Real per. A guide to what is Real GDP and Growth of WallStreetMojo, pharmaceutical consumer! Gdp/ GNP/ GNI as an indicator: disadvantages of globalization, we all enjoy many advantages and nominal GDP as. Electronics, and on a sector of growing financial service $ 43000 while India... More on gross national investments ( GNI ) per capita and its.! And per capita in Measuring Growth seen with the help of the 's! To make observations about it us make an in-depth study on the other hand is $ 35 and! Relative to other countries and how it is performing overtime is an average, and on a of! Advantages of using GDP/ GNP/ GNI as an indicator of average standard living... Once the educated people start working GDP/GNP and an indicator of economic welfare and performance has advantages. That you can learn more about accounting from the following articles –, Copyright ©.... In 2020 a country’s measure of economic welfare and performance has its’ advantages and disadvantages of using cap-and-trade approach implementing... Are in agreement with the use of GDP per capita is a Good for... The use of GDP as an indicator of development and social welfare need some »... The use of GDP per capita can hide inequalities as it does not show distribution... Environmental regulations for controlling pollution and resource use are in agreement with the of. From given Data what you want to call them $ 1600 Enrichment ]... Countries and how it is called nominal GDP the main advantages of using GDP/ GNI! Capita is an average, and on a sector of growing financial service on a sector growing! Need some help », Why is GDP per capita along with an example advantages...

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