Real GDP Per Capita

Real GDP Per Capita

• Recession – This occurs when there are 2 consecutive quarters (a quarter represents 3 months) in which real GDP falls.
• Depression - This occurs when there are 2 consecutive years in which real GDP falls.

Factors not included in GDP

• Used goods (second hand transactions) Example: If Mariam resells her car to Manu, this transaction would not be included in GDP because it would be double counting (which is when the same product is counted more than once).
• Intermediate goods (raw materials) - this is to prevent double counting some products also.

• Financial transactions like buying stocks - this is just transferring ownership. Example: If Melissa buys some Tesla stocks from Mike, then some of ownership in the company is being transferred from Mike to Melissa, but there is no production of a new good or service so it is not included in GDP.
• Illegal or non-market transactions Example: Drugs

Problems with GDP

• It does not take pollution in to consideration Example: China may have a higher GDP than many other countries but it also has a much higher rate of pollution (carbon emissions) than other countries.
• It does not take amount of leisure time in to consideration Example: some countries like Japan and USA have a very high GDP but they are among the highest in the world in terms of hours of work (which leaves them with very little time for leisure).
• It does not look at distribution of income Example: in the USA the top 1% make more than the bottom 50% of the population.

Real GDP Per Capita

• In addition to GDP, we can also measure economic well-being using Real GDP per capita (per person) and the HDI. Example: In 2019, the USA real GDP was approximately $21.43 trillion and their population was roughly 328.2 million so real GDP per capita was around $65,300.
• HDI (Human Development Index) - A commonly used index that includes education, distribution of income, gender equality, and measures of poverty to determine a country's economic well-being. Example: The USA's HDI value for 2017 is 0.92, which was the 13th highest score in the world. Norway had the highest level of the Human Development Index (HDI) worldwide in 2019 with a value of 0.96.
• Spurious correlation - This is when two variables falsely appear to be related to each other. Example: number of car sales in North America are negatively related to the orange sales in South America. This

  is

  ---

  a spurious correlation because there is no real connection between them, it is just a coincidence that they have a negative relationship. However, the GDP per capita and HDI are closely related; this

  is not

  ---

  a spurious correlation because they have a real connection.

Example: Real GDP Per Capita