This economic indicator consists of the following three concepts. You must understand these first if you want to comprehend GDP per capita. The first concept is “gross domestic product.” That measures everything that a country produces in a year. The components of GDP are personal consumption, business investment, government spending, and exports minus imports. The Bureau of Economic Analysis reports it quarterly, updating its estimate each month. The second is “real GDP,” which is GDP without the effect of price changes. Inflation makes regular, “nominal” GDP higher, so real GDP is a more accurate measurement when you want to compare an economy over time. The third is “per capita,” which means “per person.” Real GDP is divided by the population of a country to calculate real GDP per capita. It’s the best way to compare economic indicators like GDP for countries with very different population sizes.
Real GDP Per Capita Formula
The formula for real GDP per capita depends on what data you have available. Let’s start with the simplest. If you already know real GDP (R), then you divide it by the population (C): R/C = real GDP per capita. In the United States, the Bureau of Economic Analysis calculates real GDP using 2012 as the base year. If you don’t know real GDP, you can calculate it from nominal GDP (N) if you know the implicit price deflator (D). The deflator is the ratio of what goods and services would cost today if there had been no inflation since the base year. It’s similar to another measure of inflation, the Consumer Price Index. Its components are weighted differently. Fortunately, the BEA provides the deflator for 2012 in Table 1.1.9. Here’s the formula to calculate real GDP per capita (R) if you only know nominal GDP (N) and the deflator (D): (N/D) / C = real GDP per capita The best way to calculate real GDP per capita for the United States is to use the real GDP estimates already published by the BEA. Then just divide it by the population. Fortunately, the Federal Reserve Bank of St. Louis already calculated it, as shown below.
