Real GDP Per Capita

The concept of real GDP is related to all economic indicators that are calculated, usually at the end of a fiscal year. The phenomenon of modern economies is the basis of calculation of these economic indicators. Modern economy at a macro level is divided into 2 sections, the society and the production activity. The society provides the production activity and the 4 basic and essential factors of production, namely, land, labor, capital and enterprise (entrepreneurs). The production activity takes place and upon its completion along with goods and services, the production process also pays the society a fee against the use of factors of production, wages (to labor), interest (for capital), rent (for land) and profit (for enterprise). This cycle is a permanent cycle and is always taking place.

So how do you measure the performance of the economy with the help of this cycle, simple, the total volume of rent, wages, profit and interest, is the best indicator to the total performance of the economy. However, this total which is often deemed to be a national income of the nation is just a macro figure and gives us an overall, eagles eye view of the total economy, which in some cases is also distorted. Hence it becomes necessary to calculate the GDP.

Gross Domestic Product (GDP)

The concept of GDP is closely related to the process of production in the nation's economy. The Gross Domestic Product (GDP) of a nation can be defined in simple words by simply saying: "Gross Domestic Product is the total monetary value of the finished goods and services that are produced within the boundaries (international territorial borders) and the economy in one single fiscal and accounting year, is known as a GDP (Gross Domestic Product) of the nation. There are some drawbacks that may hinder the system as there are many unaccounted incomes or wealth accounts within the economy. There are two principal methods that can be used to calculate this amount, namely the expenditure approach and the income approach:

• Expenditure method approach GDP = private consumption + gross investment + government spending + (exports - imports)
• Income method approach GDP = rents + interests + profits + statistical adjustments + wages

This entire system is extremely complex and the governments employ many different methods, mathematical formulas and mechanisms to compute the actual GDP. The GDP plays a key role in several economic theories, such as Keynesian economics and macro economics theories.

How to Calculate Real GDP Per Capita

The GDP of a nation is often closely associated with the individual income or per capita income, that is earned per person. The real gross domestic product per capita is simple the GDP per capita (person). The formula simply goes as: Total GDP/Total Population.

There are several other new indicators that are modified versions of the normal real GDP such as Real GDP growth rate and PPP (Purchasing power parity) GDP per capita and Nominal GDP per capita. Some of these indexes have been introduced to over come the distortions of the normal GDP. For example the GDP (nominal) per capita is about $1,032, however in contrast to that a majority of population is below the poverty line. This indicates that India has a good GDP but a bad real GDP and purchasing power parity. It means that the distribution of the national income is unsatisfactory. Every year, several international organizations, such as International Monetary Fund, World Bank, CIA World Fact-book release statistics and tables such as real GDP by country, depicting the international standing of all national economies.

However, there is some really good rational criticism of the entire system of real GDP. Hence, in order to make the system of GDP a rational and quite applicable, King Jigme Singye Wangchuck implemented a very nice alternative system in the proud nation of Bhutan in Asia, the government measures gross national happiness with the help of different mechanisms. After all, what is the meaning of life without happiness.