What Is GDP Per Capita

For most of the individuals, GDP is a principle which determines how poor or rich a country is. So what is GDP Per capita? Simply put, GDP per capita refers to the total amount of goods and services produced by a country over a set period. Most often GDP is used to determine countries people living standards; however, GDP cannot be used to measure a person’s personal income. It involves measuring the final products and services the people of that nation were able to produce whether it is in the country or elsewhere and is measured annually.

GDP stands for gross domestic product and is used by many scholars as a measure of a nation’s economy. There are other economic indicators that are used by different scholars like the GNP which stands for gross national product and NNI which stands for net national income. All this can be used as economic indicators of a country however, there is a strong argument that gross domestic product is the best indicator of economy.

It is quite complex calculating and understanding the GDP per capita of a nation. Economists have been able to come up with simplified mathematical formulas that can be used to calculate the GDP of a country. For your information, GDP per capita is calculated by first calculating the gross domestic product then dividing the results by the total population of a country. There are many ways in which one can approach GDP; one of the most common approaches is the income approach which involves calculating the gross income of a nation. It is sometimes called the gross domestic income. The total income from various sectors like wages, salaries and rents is calculated.

Another approach is the production approach where all the total goods and services produced by a nation over the duration of 1 year are calculated. Expenditure approach is also another method employed in which the total output of a nation is determined by finding out the money spent. Expenditure approach employs the following mathematical formulae:

GDP=C+I+G+(X-M)

Where C stands for personal or household consumption, I stand for gross private domestic income, G stands for government consumption and gross investment expenditures and X stand for gross exports while M stands for gross imports.

Keep in mind that gross means production regardless of the means of production while production means investing in assets, immediate consumption or replacing depreciated assets while domestic means production that is within the restriction of the country’s borders.

Lastly, it is important to note that GDP per capita is calculated by taking the results from the formulae above and dividing by the population of the nation.