HomeQuestionsEconomicsCalculating Real GDP per Capita
📚 Learning Guide
Calculating Real GDP per Capita
hard

A country, Zeta, recently experienced a significant increase in its nominal GDP due to a surge in oil prices. However, inflation has also risen sharply. If the population of Zeta is 10 million and the GDP deflator indicates a 20% increase, what is the most accurate way to assess the change in living standards in Zeta over the past year using real GDP per capita?

Master this concept with our detailed explanation and step-by-step learning approach

Learning Path
Learning Path

Question & Answer
1
Understand Question
2
Review Options
3
Learn Explanation
4
Explore Topic

Choose the Best Answer

A

Calculate real GDP by adjusting nominal GDP only for population changes.

B

Convert nominal GDP to real GDP using the GDP deflator and then divide by the population to find real GDP per capita.

C

Use nominal GDP directly to determine living standards since GDP reflects actual economic activity.

D

Ignore the GDP deflator and compare last year's nominal GDP per capita with this year's nominal GDP per capita.

Understanding the Answer

Let's break down why this is correct

Answer

To assess the change in living standards in Zeta, we need to calculate the real GDP per capita, which adjusts nominal GDP for inflation. First, we take the nominal GDP increase caused by the oil price surge but then adjust it using the GDP deflator, which shows a 20% increase due to inflation. This means we divide the nominal GDP by 1. 2 to find the real GDP. After calculating the real GDP, we then divide this figure by the population of 10 million to find the real GDP per capita.

Detailed Explanation

To find real GDP per capita, we need to adjust nominal GDP for inflation. Other options are incorrect because This option suggests only adjusting for population changes; Using nominal GDP directly doesn't account for inflation.

Key Concepts

Real GDP per Capita
GDP Deflator
Inflation
Topic

Calculating Real GDP per Capita

Difficulty

hard level question

Cognitive Level

understand

Ready to Master More Topics?

Join thousands of students using Seekh's interactive learning platform to excel in their studies with personalized practice and detailed explanations.

Start Learning with SeekhExplore More Calculating Real GDP per Capita Questions