Limitations of GDP and Alternative Indexes
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Economic growth rate is measured by percentage changes in real GDP.
Per capita GDP measures GDP per individual resident.
Alternative indexes consider those factors excluded from GDP to provide a
more accurate measure of a country’s standard of living.
Recall that real GDP equals nominal
GDP divided by the GDP deflator, or
the average change in the price level.
Notice that the chart to the left shows
Mexico’s having a more rapid growth
rate than the US. This is not an
accurate indicator of the standards of
living between the two countries
because Mexico starts with a smaller
base of real GDP.
Per capita GDP is calculated by
dividing a country’s real GDP by its
population.
Similar to the calculation of real GDP,
per capita GDP may not be an accurate
measure of the standard of living.
Differing relative bases yield differing
relative per capita GDPs.
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1180.doc –rev 11/07/2006