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Difficulty: MediumUses and Limitations of National Income Estimates

In 2025, Country Alpha recorded a Nominal Gross Domestic Product (GDP) of $600 billion\$600\text{ billion}. The country's GDP deflator was 150150 (with base year index = 100100) and its total population was 80 million80\text{ million}. To assess living standards accurately, economists adjust national income figures for inflation and population size. What is the Real Per Capita GDP of Country Alpha in dollars?

Answer: 5000 USD

Answer

The Real Per Capita GDP of Country Alpha is $5,000.
To evaluate economic welfare accurately, national income must be adjusted for price changes (using the GDP deflator) and divided by the total population. Converting Nominal GDP ($600 billion\$600\text{ billion}) with a deflator of 150150 yields a Real GDP of $400 billion\$400\text{ billion}. Dividing $400 billion\$400\text{ billion} by 80 million80\text{ million} people gives a Real Per Capita GDP of $5,000\$5,000.

Step-by-Step Solution

1
Deflate Nominal GDP to obtain Real GDP.
Real GDP=$600 billion150×100=$400 billion\text{Real GDP} = \frac{\$600\text{ billion}}{150} \times 100 = \$400\text{ billion}
Nominal GDP includes price inflation. Dividing by the GDP deflator isolates the volume of physical output produced.
2
Divide Real GDP by total population.
Real Per Capita GDP=$400,000,000,00080,000,000=$5,000\text{Real Per Capita GDP} = \frac{\$400,000,000,000}{80,000,000} = \$5,000
Per capita real income measures the average volume of real goods and services available per person, serving as a key indicator of living standards.

Key Concept

Calculation of Real Per Capita Income for Living Standard Assessment
Estimated Time:1m 30s
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Topics

Uses and Limitations of National Income Estimates

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