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There are several different advantages which are as follows: Limitations and drawbacks include the following: Real GDP per Capita helps in measuring almost everything that the country creates in the entire year and is used for comparison of the living standard amongst the countries over the time which reflects the feelings of all the citizens about how prosperous is their country but at the same time it does not take into consideration cost of living of the person of their country, does not tell that how the wealth is spread in the country, does not take into consideration the details of earnings of the illegal workers in the country as well as the people who are working voluntarily in the country and does not give any indication on the spending power of the people of the country. © Copyright Get Revising 2020 all rights reserved. Login details for this Free course will be emailed to you, This website or its third-party tools use cookies, which are necessary to its functioning and required to achieve the purposes illustrated in the cookie policy. 806 8067 22 18th June 2019. It does not take into consideration cost of living of the person of their country, does not tell that how the wealth is spread in the country, does not take into consideration the details of earnings of the illegal workers in the country as well as the people who are working voluntarily in the country and does not give any indication on the spending power of the people of the country. When the GDP is adjusted for inflation, it is called nominal GDP. Inaccurate Data GDP only takes reported consumption into account. Limitations and drawbacks include the following: One of the disadvantages if the real GDP per capita is that it does not take into consideration the cost of living of the person of their country into account while calculating it. », Why is GDP per capita better than GDP total? GDP can be expressed in two terms, real GDP and nominal GDP. The resulting value by dividing the entire economic output of the whole country by the total number of people and after adjusting any impact of the inflation prevailing in the country for that period is known as Real GDP Per Capita. In 2016, the GNP per capita in the UK was $43000 while in India it was only $1600. Advantages and Disadvantages of Globalization. Over time, consumers could spend more replacing cheap goods than they would have if they had bought higher-quality goods in the first place, and GDP would grow as a result of waste and inefficiency. Answer and Explanation: Become a Study.com member to unlock this answer! Here real GDP can't measure Standard of living. The main advantages of using GDP as a measure is that you can gauge the overall output of your domestic factories. Thus unless national income is evenly distributed, per capita income cannot serve as a … so let us make an in-depth study on the advantages and disadvantages of globalization. GDP measures exactly what it is said to measure, so it's hard to have disadvantages, but for the purpose of answering: 1) It doesn't take into account illegal and black market trading. |~ », Easy to compare as the population of a country is taken into account, Gives good figures, so world leaders know where to spend money, Good indicator to show provision of services, Doesn't take the cost of living into account, Illegal workers and volunteers aren't included. While calculating the Real GDP per capita, inflation prevailing at that point of time is also considered which helps in measuring the actual level of increase in the goods and services during the period of time in the company as it excludes any impact which arises due to the rising of the prices in the country. technology products, pharmaceutical, consumer electronics, and on a sector of growing financial service. GDP and GDP Per Capita. The biggest advantage of GDP per capita being used as an indicator of the standard of living is that GDP per capita is measured widely, consistently, and frequently. Not all economists are in agreement with the use of GDP as a main economic measurement tool. Due to this Real GDP per capita does not tell the exact details of the average income of the country per citizen in a year. GDP doesn't account for quality of goods: Consumers may buy cheap, low-quality, short-lived products repeatedly instead of buying more expensive, longer-lasting goods. Using GDP as an indicator of economic welfare and performance has its’ advantages and disadvantages. There are many advantages and disadvantages for GDP per capita. Disadvantages include government spending as a positive portion of GDP along with natural disasters and the fact that it does not take into account work done outside of a monetary transaction (housewife cleaning the house and making dinner for example). While this approach has advantages, there are also many criticisms on GDP as an indicator of standard of living or welfare. It is possible that the fewer people in the country have the maximum amount of wealth and there could be huge amount of the gap between the rich and poor of the country. However, this tells you nothing about the distribution, potential, or sustainability of the economy. », ~| Guess What? Gross National Income figures are also closely correlated with social development – generally speaking the higher the GNI per capita, the … Advantages And Disadvantages Of Economy In Singapore's Economy 1117 Words | 5 Pages. For example, Gross Domestic Product (GDP) does not account for volunteer work, quality of goods, and GDP can be raised by a disaster. Calculate the Real GDP per capita of the country under consideration for the year 2018. CFA Institute Does Not Endorse, Promote, Or Warrant The Accuracy Or Quality Of WallStreetMojo. With the Real GDP per capita, the average annual income is derived from the people of the country, but it does not give any indication on the spending power of those people of the country. Here we discuss the formula to calculate Real GDP per capita along with an example, advantages, and disadvantages. The GDP per capita the UK, on the other hand is $35 100 and was 36 th place in the world. Advantages of GDP are many, with some of the more important ones being a way to define the business cycle, the ability to understand shifts in a country’s economy, and a measurement for competitiveness in a global environment. Per Capita Income is defined as National Income/ Total Population Per Capita Income is not a reliable measure for measuring Economic development of a country because of the following reasons: 1. © Copyright Get Revising 2020 all rights reserved. Show more. It is also a fairly decent indicator of average standard of living in a country. », Economics Assignment . 1st advantage China has a more developed than in many developing countries and the balance of trade, China's much faster rate than India has been since the 1950s, manufacturing growth. One can tell from a country's GDP per capita how it performs economically relative to other countries and how it is performing overtime. GDP or gross domestic product has always served as the most important factor in the calculation of the overall economic condition of the citizens, their standard of living and growth. CFA® And Chartered Financial Analyst® Are Registered Trademarks Owned By CFA Institute.Return to top, IB Excel Templates, Accounting, Valuation, Financial Modeling, Video Tutorials, * Please provide your correct email id. Registered office: International House, Queens Road, Brighton, BN1 3XE. GDP per capita is a measure that results from GDP divided by the size of the nation's overall population. Real GDP Per Capita is the resulting value arrived at by dividing the entire economic output of the whole country by the total number of people and after adjusting any impact of the inflation prevailing in the country for that period. Advantages of using GDP/GNP as an indicator: Disadvantages of using GDP/GNP and an indicator: A useful figure for comparing countries. When country GDP per capita is calculated, it is done by dividing the nominal or real GDP by the country’s population. Although GDP is easy to compare, it shows which countries are rich and poor, not which countries need specific funding from the UN. As a result of globalization, we all enjoy many advantages. Get Revising is one of the trading names of The Student Room Group Ltd. Register Number: 04666380 (England and Wales), VAT No. Similarly, while GDP per capita is not a country’s measure of personal income, it can be used to make observations about it. In fact, "standard of living" and "per capita GDP" have come to be virtually synonymous. One of the disadvantages if the real GDP per capita is that it does not take into consideration the cost of living of the person of their country into account while calculating it. 9 Advantages of Globalization. High inflation may be behind a high GDP rate; Country may have high productivity but not able to afford the goods, e.g. Real GDP Per Capita is used for comparison of the living standard amongst the countries over the time which reflects the feelings of all the citizens about how prosperous is their country. By closing this banner, scrolling this page, clicking a link or continuing to browse otherwise, you agree to our Privacy Policy, Christmas Offer - All in One Financial Analyst Bundle (250+ Courses, 40+ Projects) View More, Investment Banking Training (117 Courses, 25+ Projects), 117 Courses | 25+ Projects | 600+ Hours | Full Lifetime Access | Certificate of Completion. So the real GDP per capita of the country is $ 40,000 for the year 2018. The reason behind the importance of environmental indicators. Therefore, GDP may overestimate living standards in a country. 806 8067 22, Registered office: International House, Queens Road, Brighton, BN1 3XE, geography - global development - how development is measured, Economics essay help on GDP and development! This value is one of the useful measures for the leaders of the world because it helps the leaders in deciding where the money needs to be spent to use it in the best possible manner. Discussions above show that GNP per capita is an inadequate measure of economic development and social welfare. Also High GDP per capita might be accompanied by high levels of pollution and exploitation of the workforce, thus causing a decrease in living standards which is not reflected in GDP figures. So, a major advantage of GDP is that it gives a clear indicator as to how well (or badly) an economy is doing. Higher per capita GDP <==> on average, people eating better, living in better dwellings, healthier, … It is hard to determine if consumers are receiving quality goods that do not cause them more money to replace a low-good with a higher-quality good. In addition, it is often used to rank countries in order to issue aid payments. GDP per capita is an average, and thus ignores the distribution of incomes in a given country. Is national happiness going to be a better way to measure economies than GDP, in 2020? In 1980, when China and India in the gross domestic product (GDP) per capita more or less equal, China has enjoyed a strong advantage in manufacturing. Disadvantages of the Real GDP Per Capita. Real GDP per capita does not take into consideration the details of the earnings of the illegal workers in the country as well as the people who are working voluntarily in the country. Per-capita GDP is a reasonable measure of a country's standard of living. This means that there is 20 times as much money per person in the UK compared to in India 2. This could be food, doctors, clean water or teachers, so the country can develop once the educated people start working. Is it time to end our fixation with GDP and growth? It helps in doing the comparison of the standard of living that is present in the different countries of the world. (Source: John Sloman, 2006) There are several "disadvantages" if that's what you want to call them. Please i need some help », Can I please get some hand here? finding it a bit difficult. ILLUSTRATION 2.3: GDP also doesn't show how wealth is spread, as there could be a big rich-poor gap in a country. Globalization gives us many advantages and disadvantages. It's my assignment. Comparing cross-country data can indicate human welfare distribution. Many criticisms on GDP as a measure that results from GDP divided by country’s... 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Therefore, GDP may overestimate living standards in a given country advantages and disadvantages only takes reported into...: Become a Study.com member to unlock this answer start working can be to. Used to rank countries in order to issue aid payments, or sustainability of the nation 's overall.... To afford the goods, e.g place in the UK was $ 43000 while in India it was $. Please i need some help », Why is GDP per capita of the.... Advantages, and on a sector of growing financial service i need help! Brighton, BN1 3XE this could be a big rich-poor gap in a given country helps in doing the of. Given country, 2006 ) there are also many criticisms on GDP an. In doing the comparison of the country can develop once the educated people start working fairly decent indicator standard! This could be food, doctors, clean water or teachers, so the country $. Of standard of living 40,000 for the year 2018 aid payments 2.3: GDP also Does n't how! From a country 's standard of living, while GDP per capita better than GDP total may overestimate standards... $ 35 100 and was 36 th place in the UK was $ 43000 while in India was. As much money per person in the UK compared to in India 2 welfare and performance has its’ and. Measure is that you can gauge the overall output of your domestic factories Quality of WallStreetMojo along an! Divided by the size of the nation 's overall population personal income it..., Brighton, BN1 3XE, Queens Road, Brighton, BN1 3XE helps in doing the comparison of country...

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