Advantages of using GDP/GNP as an indicator: Disadvantages of using GDP/GNP and an indicator: A useful figure for comparing countries. 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. This has been a guide to what is Real GDP Per Capita and its definition. The formula for the calculation of the Real GDP per capital is as follows: Real GDP Per Capita formula = Real GDP / Population. 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. 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 And Disadvantages Of Economy In Singapore's Economy 1117 Words | 5 Pages. 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. Can hide inequalities as it does not show the distribution of wealth. It is hard to determine if consumers are receiving quality goods that do not cause them more money to replace a low-good with a higher-quality good. Sweden ISN'T Socialist! China makes a huge number of iPhones but the majority of people living their canât afford them; Government could adjust figures to gain power; Production process could be immoral, high GDP could be down to trading drugs or guns GDP per capita is a measure that results from GDP divided by the size of the nation's overall population. 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). Please i need some help », Can I please get some hand here? 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. 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⦠It helps in doing the comparison of the standard of living that is present in the different countries of the world. Per-capita GDP is a reasonable measure of a country's standard of living. 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. Registered office: International House, Queens Road, Brighton, BN1 3XE. GDP measures exactly what it is said to measure, so it's hard to have disadvantages, but for the purpose of answering: 1) It doesn't take into account illegal and black market trading. 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. Often used to rank countries to establish a fair system of aid payments. Get Revising is one of the trading names of The Student Room Group Ltd. Register Number: 04666380 (England and Wales), VAT No. so let us make an in-depth study on the advantages and disadvantages of globalization. », Economics Assignment . GNI figures provide a snap-shot indication of the huge difference between the more developed and less developed countries. GDP and GDP Per Capita. 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. GDP also doesn't show how wealth is spread, as there could be a big rich-poor gap in a country. 18th June 2019. technology products, pharmaceutical, consumer electronics, and on a sector of growing financial service. For example, Gross Domestic Product (GDP) does not account for volunteer work, quality of goods, and GDP can be raised by a disaster. GDP doesn't account for quality of goods: Consumers may buy cheap, low-quality, short-lived products repeatedly instead of buying more expensive, longer-lasting goods. Answer and Explanation: Become a Study.com member to unlock this answer! The advantages and disadvantages of using cap-and-trade approach in implementing environmental regulations for controlling pollution and resource use. Student videos. 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. 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. |~ », 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. 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. 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. Discussions above show that GNP per capita is an inadequate measure of economic development and social welfare. This has disenchanted economists about its efficacy as a true index of development and welfare. Per Capita Income is defined as National Income/ Total Population Per Capita Income is not a reliable measure for measuring Economic development of a country because of the following reasons: 1. », ~| Guess What? From the Blog. So, a major advantage of GDP is that it gives a clear indicator as to how well (or badly) an economy is doing. Disadvantages. 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. © Copyright Get Revising 2020 all rights reserved. When country GDP per capita is calculated, it is done by dividing the nominal or real GDP by the countryâs population. 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 ⦠⦠9 Advantages of Globalization. It is a Good indicator for showing the provision of the services. So the real GDP per capita of the country is $ 40,000 for the year 2018. Show more. There are several "disadvantages" if that's what you want to call them. GDP per capita is measured when GDP is divided by the number of people in the country. The GDP per capita the UK, on the other hand is $35 100 and was 36 th place in the world. GDP can be expressed in two terms, real GDP and nominal GDP. In 2016, the GNP per capita in the UK was $43000 while in India it was only $1600. However, this tells you nothing about the distribution, potential, or sustainability of the economy. The main advantages of using GDP as a measure is that you can gauge the overall output of your domestic factories. 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. However, proper analysis of the entire process has delineated certain limitations of GDP per Capita in Measuring Growth. When the GDP is adjusted for inflation, it is called nominal GDP. 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. 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). 806 8067 22 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. 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. Change in per capita gdp is a pure measure of productivity because it controls for population size. 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. Here real GDP can't measure Standard of living. Three Advantages of using GDP/ GNP/ GNI as an indicator of development 1. There are many advantages and disadvantages for GDP per capita. Thus unless national income is evenly distributed, per capita income cannot serve as a ⦠One method of calculation is to consider GDP at its purchasing power parity (PPP). Not all economists are in agreement with the use of GDP as a main economic measurement tool. In fact, "standard of living" and "per capita GDP" have come to be virtually synonymous. 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. Disadvantages of the Real GDP Per Capita. 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