Real GDP Per Capita and the Standard of Living

… a core concept in Macroeconomic Policy

Click for MRU video

Click for MRU video

Concept description

This concept shows how real GDP per capita is correlated with indicators of standard of living.

Alex Tabarrok (reference below and video to right) describes the importance of real GDP per capita in the following way.

“They say what matters most in life are the things money can’t buy. So far, we’ve been paying attention to a figure that’s intimately linked to the things money can buy. That figure is GDP, both nominal, and real. But before you write off GDP as strictly a measure of wealth, here’s something to think about. Increases in real GDP per capita also correlate to improvements in those things money can’t buy. Health. Happiness. Education. What this means is, as real GDP per capita rises, a country may also see related benefits. As the figure increases, people’s longevity tends to march upward along with it. Citizens tend to be better educated. Over time, growth in real GDP per capita also correlates to an increase in income for the country’s poorest citizens.

“But before you think of GDP per capita as a panacea for measuring human progress, here’s a caveat. GDP per capita, while useful, is not a perfect measure. For example: GDP per capita is roughly the same in Nigeria, Pakistan, and Honduras. As such, you might think the three countries have about the same standard of living. But, a much larger portion of Nigeria’s population lives on less than $2/day than the other two countries. This isn’t a question of income, but of income distribution – a matter GDP per capita can’t fully address. In a way, real GDP per capita is like a thermometer reading – it gives a quick look at temperature, but it doesn’t tell us everything. It’s far from the end-all, be-all of measuring our state of well-being. Still, it’s worth understanding how GDP per capita correlates to many of the other things we care about: our health, our happiness, and our education. So join us in this video, as we work to understand how GDP per capita helps us measure a country’s standard of living. As we said: it’s not a perfect measure, but it is a useful one.”

MRU practice questions

See http://www.mruniversity.com/node/329130, accessed 22 April 2016.

  1. Real GDP per capita is positively correlated with all of the following except:

Source

Alex Tabarrok, Real GDP Per Capita and the Standard of Living, Marginal Revolution University, at http://www.mruniversity.com/courses/principles-economics-macroeconomics/gdp-per-capita-standard-of-living, accessed 22 April 2016.

Atlas topic and subject

The Study of Macroeconomics (core topic) in Macroeconomic Policy.

Page created by: Ian Clark, last modified on 20 April 2016.

Image: Alex Tabarrok, Real GDP Per Capita and the Standard of Living, Marginal Revolution University, at http://www.mruniversity.com/courses/principles-economics-macroeconomics/gdp-per-capita-standard-of-living, accessed 22 April 2016.