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Calculating Real GDP per Capita
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To calculate real GDP per capita, one must first adjust the nominal GDP for inflation using a __________ and then divide by the total population.

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Choose the Best Answer

A

GDP deflator

B

inflation index

C

consumer price index

D

fiscal multiplier

Understanding the Answer

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Answer

To calculate real GDP per capita, you first need to adjust the nominal GDP, which is the raw economic output measured at current prices, for inflation. This adjustment is done using a price index, like the Consumer Price Index (CPI), which helps show how much prices have changed over time. For example, if a country's nominal GDP is $1 trillion but inflation has increased prices by 10%, you would adjust this figure to reflect the real value of goods and services produced. After adjusting for inflation, you then divide this real GDP by the total population to find out how much economic output is available per person. This gives a clearer picture of the average standard of living in the country.

Detailed Explanation

The GDP deflator helps us adjust the GDP for inflation. Other options are incorrect because An inflation index is a general term; The consumer price index measures price changes for everyday items.

Key Concepts

Real GDP per Capita
GDP Deflator
Inflation Adjustment
Topic

Calculating Real GDP per Capita

Difficulty

medium level question

Cognitive Level

understand

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