Which statement about real GDP per capita is true?

Which statement about real GDP per capita is true?

• A. Real GDP per capita is a better measure of average living standards than GDP because it accounts for population and inflation, though it does not capture income distribution.
• B. Real GDP per capita always overstates living standards when prices fall.
• C. Real GDP per capita ignores population changes and is not useful for comparing across years.
• D. Real GDP per capita and nominal GDP per capita provide the same information.

Answer: (A)

Real GDP per capita shows how much the economy produces per person after removing the effects of inflation, by dividing real GDP by the population. Because it uses prices from a base year to strip out price changes, it tracks trends in the amount of goods and services available per person, not just how much the economy is producing in total. This makes it a better gauge of average living standards than simply looking at total GDP or GDP per capita without adjusting for inflation and population. But it isn’t a perfect measure. It doesn’t tell you how income is distributed among people, so it can hide inequality. It also ignores non-market aspects of wellbeing, like leisure, health, environmental quality, and access to services. The other statements don’t fit because real GDP per capita is specifically designed to account for population changes and for inflation, so it is useful for comparing across years. It does not always overstate living standards when prices fall, since deflation can affect real GDP per capita in different ways. And real GDP per capita and nominal GDP per capita do not provide the same information because one is adjusted for inflation while the other is not.

Real GDP per capita shows how much the economy produces per person after removing the effects of inflation, by dividing real GDP by the population. Because it uses prices from a base year to strip out price changes, it tracks trends in the amount of goods and services available per person, not just how much the economy is producing in total. This makes it a better gauge of average living standards than simply looking at total GDP or GDP per capita without adjusting for inflation and population.

But it isn’t a perfect measure. It doesn’t tell you how income is distributed among people, so it can hide inequality. It also ignores non-market aspects of wellbeing, like leisure, health, environmental quality, and access to services.

The other statements don’t fit because real GDP per capita is specifically designed to account for population changes and for inflation, so it is useful for comparing across years. It does not always overstate living standards when prices fall, since deflation can affect real GDP per capita in different ways. And real GDP per capita and nominal GDP per capita do not provide the same information because one is adjusted for inflation while the other is not.