Why is GDP per capita important?


Why is GDP per capita important?

There is a difference between the concept of GDP and GDP per capita even though both serve as a barometer of a nation’s economic strength. GDP on one hand is defined as the total market value of all final goods and services produced in a country in a given year, equal to total consumer, investment, and government spending, plus the value of exports, minus the value of imports” (investorwords.com). GDP per capita on the other hand is the share of individual members of the population to the annual GDP” (nationmaster.com).
GDP per capita is computed through dividing the real or nominal value of GDP by the country’s annual total population count, and is often linked by economists with standard of living. Best example that would show the difference between GDP and GDP per capita is through comparison between the economy of China and the US. In terms of GDP, China and U.S. are close with each other. However in terms of GDP per capita, China falls way behind the U.S. which is due to the great difference in number of population among the two countries.
GDP per capita is viewed to be important as it give out figures regarding the average standard of living of an individual member of the society. It signifies economic growth when there is an increase in the nation’s GDP per capita, and a decline in the economy if it follows a decreasing trend. It is also believed to aid the government, together with its economic experts, to be able to come up with policies, industries, and contingency plans that supports economic growth.
GDP per capita serves as a benchmark in categorizing countries as poor, developing, or rich under the conditions of economic growth, standard of living, and many other essential factors. And, with the constant monitoring of a nation’s GDP per capita, a country can prevent having inflation which is a product of an increasing purchasing power of the population.

Author: khristine

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