GDP Question (1 Viewer)

[passion89]

This is so easy but I just totally forgot how to do it!

How do you calculate GDP per capita if all the information they've given you is CPI and money GDP??

Is there a particular formula I should follow?

 

[gnrlies]

This is so easy but I just totally forgot how to do it!

How do you calculate GDP per capita if all the information they've given you is CPI and money GDP??

Is there a particular formula I should follow?

Well you cant work out GDP per capita unless theyve given you the population as well (unless theyve given you money gdp per capita or nominal gdp per capita).

Is this question asking for real gdp per capita or just gdp?

If its asking for real GDP per capita then you would just multiple money gdp by the ratio of CPI indexes (i.e. cpi year 1 / cpi year 2)

Otherwise there is not enough information

 

[passion89]

Oops my bad - they've actually asked for just Real GDP. So I could just multiply the money GDP by CPI ratio?

So if it were $426m in year 2 and the CPI for year 1 was 100 and for year 2 was 104, I could just multiply 426 * (100/104) ?

I'm still a bit confused.

 

[gnrlies]

Oops my bad - they've actually asked for just Real GDP. So I could just multiply the money GDP by CPI ratio?

So if it were $426m in year 2 and the CPI for year 1 was 100 and for year 2 was 104, I could just multiply 426 * (100/104) ?

I'm still a bit confused.

Yes

The CPI is a price index. Its something that tries to describe the level of prices in an economy at a given point in time.

If prices rise, then our level of income must rise by the same proportion in order to allow us to purchase the same quantity of goods.

So when comparing Nominal or Money GDP between years, we need to give it a weighting in order to compare it between years.

So if prices have risen, then we need to multiply the nominal or money GDP by some number between 1 and 0 as that level of GDP does not give us the same buying power (as we are trying to work out real gdp we need to consider buying power).

So what number between 1 and 0 do we use? well we use the ratio of CPI figures as this gives us an indication of the magnitude of the price rise.

So what we do is multiple the nominal amount ($426m) by the ratio of the CPI figures (100/104).

So what that will do is give us a figure that is less than the nominal amount that we can use to compare with year 1 (so that buying power is taken into account)

 

[passion89]

Awesome, thank you so much for that!