1. Why do economists use real GDP per capita to measure economic progress rather than some other measure, such as nominal GDP per capita or real GDP?
Economic progress raises the living standards of the average resident of a country. An increase in overall real GDP does not accurately reflect an increase in an average resident’s living standard because it does not account for growth in the number of residents. If, for example, real GDP rises by 10% but population grows by 20%, the living standard of the average resident falls: after the change, the average resident has only (110/120) × 100 = 91.6% as much real income as before the change. Similarly, an increase in nominal GDP per capita does not accurately reflect an increase in living standards because it does not account for any change in prices. For example, a 5% increase in nominal GDP per capita generated by a 5% increase in prices implies that there has been no change in living standards. Real GDP per capita is the only measure that accounts for both changes in the population and changes in prices.