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Macroeconomics: per capita GDP and economic growth

Per Capita GDP:

  • Real GDP adjusts for prices, per capita gdp adjusts for population size.
  • Countries with large populations have large GDP's  since their supply of labor and human capital allows them to produce more output than countries with smaller populations.
  • The real average income is given by the following formula:
The following table shows the top five largest economies, and the top five per capita GDP:
Countries Nominal GDP ($ million) Countries p.c GDP
U.S.A$21,439,453Luxembourg$113,196
China$14,140,163Switzerland$83,716
Japan$5,154,475Norway$77,975
Germany$3,863,344Ireland$77,771
India$2,935,570Qatar$68,687

  • Notice that the top five countries with the largest economies are not in the top five countries with largest per capita GDP's.
  • Per Capita GDP provides a much better measure (though still imperfect) of the standard of living in a country than GDP. Furthermore, real per capita GDP provides a way to estimate how productive, on average, the inhabitants of a country are.
  • One of the main drawbacks of per capita GDP is that it tells us nothing about the income distribution in a country. For example a nation can have a high per capita GDP but if only a few people own most of the production, than most people earn much less than the average income.
Economic growth and recession:
  • Economic growth is defined as follows; an increase in a country's output over a period of time.
  • Recession is defined as a decline in economic activity, across the country, lasting for at least two successive quarters (i.e 6 months).
  • GDP growth rate:


  • The graph above represents the US GDP growth rate from 1961 to 2019. Notice that the year of highest growth come just after recessions. These spikes represent the periods of recovery in the business cycle.
  • Business cycle: it reflects the idea that due to short term fluctuation in the different variables that compose the economy, it (the economy) may experience periods of rapid economic expansion followed by sudden contraction. Despite these sudden changes in the short run, the economy is moving towards is long term growth rate (usually not negative).
  • When the demand of a nation's output grows more rapidly than the level of aggregate supply, output increases beyond full-employment level in the short run. This represents the phase of economic expansion. 
  • As wages and prices adjust to higher levels of demand, output will decrease. The period of economic growth is followed by an economic contraction (i.e recession).

References: 
  • Welker, Jason. AP Maroeconomics Crash Course. Research & Education Association (2014). p 75-80.

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Location: New York, NY, USA

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