China makes a huge number of iPhones but the majority of people living their canât afford them; Government could adjust figures to gain power; Production process could be immoral, high GDP could be down to trading drugs or guns 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. Sweden ISN'T Socialist! 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. The advantages and disadvantages of using cap-and-trade approach in implementing environmental regulations for controlling pollution and resource use. 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. 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. Disadvantages of the Real GDP Per Capita. This has been a guide to what is Real GDP Per Capita and its definition. Although the GDP per capita of a country may be very high, it may be the case that 10 percent of the country earn millions of times more than the other 90 percent of the country's inhabitants, who earn extremely low ⦠It is a Good indicator for showing the provision of the services. |~ », 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. Often used to rank countries to establish a fair system of aid payments. 18th June 2019. GNI figures provide a snap-shot indication of the huge difference between the more developed and less developed countries. so let us make an in-depth study on the advantages and disadvantages of globalization. Please i need some help », Can I please get some hand here? Answer and Explanation: Become a Study.com member to unlock this answer! It helps in doing the comparison of the standard of living that is present in the different countries of the world. For example, Gross Domestic Product (GDP) does not account for volunteer work, quality of goods, and GDP can be raised by a disaster. GDP and GDP Per Capita. Fifty years ago, the city-state of Singapore was undeveloped and lacks both arable land and natural resources with a GDP per capita of less than US $320. 9 Advantages of Globalization. Increases inequality: Sometimes spending more on gross national investments (GNI) per capita can hide the widespread inequality within the country. One method of calculation is to consider GDP at its purchasing power parity (PPP). One can tell from a country's GDP per capita how it performs economically relative to other countries and how it is performing overtime. 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. GDP per capita is often used as an indicator of welfare in an economy. However, this tells you nothing about the distribution, potential, or sustainability of the economy. GDP per capita is measured when GDP is divided by the number of people in the country. 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. Globalization gives us many advantages and disadvantages. Per capita income is an average and this average may not represent the standard of living of the people, if the increased national income goes to the few rich instead of giving to the many poor. This has disenchanted economists about its efficacy as a true index of development and welfare. Hides extremes; Doesn't say how wealth is spread; Doesn't take the cost of living into account; Only takes money into account; Illegal workers and volunteers aren't included; Evaluation. The reason behind the importance of environmental indicators. Can hide inequalities as it does not show the distribution of wealth. Inaccurate Data GDP only takes reported consumption into account. Therefore, GDP may overestimate living standards in a country. Higher per capita GDP <==> on average, people eating better, living in better dwellings, healthier, ⦠Advantages and Disadvantages of Globalization. Change in per capita gdp is a pure measure of productivity because it controls for population size. Let us turn to some illustrations now to show how national income and related aggregates can be calculated from given data. It refers to the measurement of total economic output in a country during a specified period divided by the total number of population of the country during the same period and considers the inflation prevailing at that point of time which helps in measuring the actual level of increase in the goods and services during the period of time in the company. Real GDP reflects the value which has been adjusted for inflation while nominal GDP reflects the value without considering inflation (Abel, Bernanke and McNabb, 1998). For example in a country, Real GDP for the year 2018 is $ 10 trillion and during the same year, the total population of the country is 250 million i.e., there are 250 million people in the country during the year 2018. 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. However, proper analysis of the entire process has delineated certain limitations of GDP per Capita in Measuring Growth. 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. From the Blog. 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. While this approach has advantages, there are also many criticisms on GDP as an indicator of standard of living or welfare. Although GDP is easy to compare, it shows which countries are rich and poor, not which countries need specific funding from the UN. It is also a fairly decent indicator of average standard of living in a country. © Copyright Get Revising 2020 all rights reserved. GDP also doesn't show how wealth is spread, as there could be a big rich-poor gap in a country. 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. 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. Student videos. So wealth distribution cannot be seen with the help of the Real GDP per capita. Thus unless national income is evenly distributed, per capita income cannot serve as a ⦠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. Using GDP as an indicator of economic welfare and performance has itsâ advantages and disadvantages. 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). The main advantages of using GDP as a measure is that you can gauge the overall output of your domestic factories. 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. 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