How Does GDP work; and how is it a measure of country wealth.

Question

How does GDP work? Specially how do you interpret the numbers to see how well people in a country are doing?

For example, I saw this:

[OC] GDP by each country from Infographics

Does this mean the USA produces about 23K per person?

Can this information be used to determine if a country is 3rd world?

Thanks!

In: 1

Answer 1

It’s exactly what the name says – gross domestic product, how much the country produces in total.

Per capita, this number gives you the economic activity per person.

The US GDP *per capita* is about $64,000 – i.e. the country’s economy produces $64k per person.

This value is roughly equivalent to the general wealth of the country’s population, with wealthy countries near the top and war-torn developing countries at the bottom.

It’s not a perfect measure though – it doesn’t tell you how that wealth is distributed and doesn’t tell you what percentage of the population is actually earning money.

A perfect communist beehive and a country ruled by the all-powerful god king may have the same GDP per capita but very different wealth distributions.