Real GDP Per Capita (Definition) | Advantages & Disadvantages

Real GDP Per Capita Definition

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. 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.

Real GDP Per Capital Formula

Real GDP Per Capita = Real GDP/Population

Example of the Real GDP Per Capita

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. Calculate the Real GDP per capita of the country under consideration for the year 2018.

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.

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The formula for the calculation of the Real GDP per capital is as follows:

Real GDP Per Capita formula = Real GDP / Population

Where,

Real GDP = $ 10,000,000,000,000
Population of the country = 250,000,000

Calculation of Real GDP Per Capita

= $ 10,000,000,000,000 / 250,000,000
= $ 40,000

So the real GDP per capita of the country is $ 40,000 for the year 2018.

Advantages of the Real GDP Per Capita

There are several different advantages which are as follows:

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.
It makes the comparison easy as the country’s population as a whole is taken into account while calculating the Real GDP per capita and it tells that which country of the world is poor and which country is rich.
This value is one of the useful measures for the leaders of the world because it helps the leaders in deciding where the money needs to be spent to use it in the best possible manner.
It is a Good indicator for showing the provision of the services.

Disadvantages of the Real GDP Per Capita

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.
Real GDP per capita calculates an average figure, due to this it is not possible to get the output from it regarding the distribution of the income among the people of the country i.e., it does not tell that how the wealth is spread in the country. It is possible that the fewer people in the country have the maximum amount of wealth and there could be huge amount of the gap between the rich and poor of the country. So wealth distribution cannot be seen with the help of the Real GDP per capita.
Real GDP per capita does not take into consideration the details of the earnings of the illegal workers in the country as well as the people who are working voluntarily in the country. 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.
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.

Important Points

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.
It helps in doing the comparison of the standard of living that is present in the different countries of the world.
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.

Conclusion

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.