What is GDP per capita and how is it calculated?

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In our current society, the economy is one of the most important factors, influencing many of the actions we do every day. Due to the great importance of the economy, there are a series of mechanisms that are used to show quality of life of a country and social welfare, one of the most important being GDP per capita. To understand this very relevant concept today in this lesson from a TEACHER we are going to talk about what is per capita GDP and how is it calculated.

To understand GDP per capita we must first talk about the Gross Domestic Product, since without the second the first cannot be calculated. The Gross Domestic Product, also called GDP, is a system that is used to order the economy of the countries, being essential in the current study of macroeconomics, that is, the study of the economy at a global level.

The GDP of a state shows the monetary value of goods and services that a country has generated in a given time. Its name is made up of the words "interior" and "gross", the former because it carries out a study of the economic activities in the interior of a country, and the second because the consumption of capital.

As we will see with GDP per Capita, GDP has a series of limitations and errors that makes many people think that it is not the best system to understand the economy of a certain country. Some of these errors are as follows:

• It does not take into account the self-consumption.
• The difficult precision of the quantities handled in the submerged economy.
• Unlike GDP per capita, it does not serve to show the well-being of the citizens of a country.
• Add to the data the theoretical value of the volunteering, which has no "real" economic value.

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Once we understand what nominal GDP is, we are going to talk about what per capita GDP is and how it is calculated. GDP per capita is a economic indicator, used mainly in macroeconomics, which serves to see the relationship between the income of a state and its population. It is mainly used to show the social welfare of a country, as it shows some of the great economic inequalities, unlike GDP, which only shows the total economy.

The calculation of GDP per capita is very simple, you just have to divide nominal GDP by the number of inhabitants from the country. Thanks to this calculation, if a country has great economic power but part of its country is in poverty, the calculation will come out much lower than if we calculate it only with nominal GDP. An example of this is India, the seventh richest country in the world according to GDP, but due to the great inequalities that exist, with a large population in the index of poverty, the Asian country is ranked 118 of the richest countries according to GDP per capita, that is, a drop of 111 place between both factors economic.

It is interesting to see which countries occupy the first positions in the ranking of GDP per capita, the majority being small countries with great wealth, and only remaining one of the ten richest countries in the world. The 10 states with the highest GDP per capita are as follows:

1. Taste
2. Luxembourg
3. Singapore
4. Ireland
5. Brunei
6. Norway
7. United Arab Emirates
8. Kuwait
9. Swiss
10. USA

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Like everything in life, GDP per capita also receives criticism, as some economic experts believe that has serious limitations and that it does not really serve to show real social well-being. Some of these criticisms are as follows:

• Does not show true income inequalities, since when dividing the GDP by inhabitants what it does is show that everyone has the same income, therefore it ignores the economic differences.
• exist factors that decrease social welfare and they are not calculated within GDP per capita. Examples of this are, for example, the decrease in natural resources.
• Not all economic expenses They serve to improve social welfare, some such as spending on the army only serve to protect citizens from abroad.
• exist other more complete indicators such as the index of sustainable economic well-being.