Chapter 37, Problem 2FRQ

To determine

To find:

Changes in which variable leads to increase in real GDP per capita, what other variables affect the real GDP per capita and reason for less significance.

Explanation of Solution

Increase in real GDP per capita result primarily from changes in productivity, which again depends on labor as well as the technological advancements. The more the number of labor participation and innovation, the more is the level of productivity and thereby real GDP.

Increase in capital variable could also lead to increased real GDP per capita. Capital is one of the important factors for productivity. However, it is less significant because capital cannot be used when labor is unavailable for employment.

So, labor is considered the most important factor for increase in real GDP per capita.

Economics Concept Introduction

Real GDP per capita is computed by taking the value of all goods and services produced in an year over a period of time and calculated with the price of base year. This computation when divided by the number of population gives real GDP per capita.