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GDP Per Capita and Deflation Discussion

GDP Per Capita and Deflation Discussion


GDP and GDP per capita definitions:

Gross Domestic Product (GDP) is a metric that describes the overall economic production generated within a nation’s boundaries over a given time frame. It comprises the total value of all goods and services produced in that nation by both domestic and foreign companies. Three methods can be used to calculate GDP:

  • The production method (which adds up the value contributed at each production stage).
  • The expenditure method (which adds up all of the money spent on finished goods and services).
  • The income method (which adds up all of the money made during the production process).

On the other hand, GDP per capita is calculated by dividing a country’s total GDP by its population. It provides an average measurement of economic output per person and is frequently used to evaluate how well other nations have performed economically.

US and Chinese GDP and GDP per person in 2014:

The US and China’s respective GDPs and GDP per capita as of my most recent information update in September 2021 were as follows:

American States

    About $17.42 trillion in GDP

    GDP per person is approximately $54,629


    About $10.38 trillion in GDP

    GDP per person: about $7,595

Please be aware that these numbers are approximations and may change depending on the data source and computation method.

US and Chinese GDP growth rates in 2014:

The US and China’s GDP growth rates in 2014 were:

United States: 2.4% roughly

Chinese: about 7.3%

Once more, these numbers are estimates and may change depending on the data sources.

Aggregate demand effects of deflation: Deflation is the sustained reduction in the general level of prices for goods and services in an economy. Deflation can negatively affect the economy, especially regarding aggregate demand, the total demand for goods and services in an economy, even though it can initially sound good for consumers (as products are cheaper).

Deflation affects aggregate demand in the following ways:

    The actual debt burden grows due to deflation, raising the debt cost. The nominal worth of debts stays constant when prices fall, making it more difficult for borrowers—individuals and companies—to pay back their obligations. Reduced borrowing and spending may result from this.

    Purchases Put Off: Because consumers anticipate further price declines, they can put off making purchases. The overall demand for products and services may decline due to this decline in consumer expenditure.

    Reduced Business Investment: Companies that foresee future price decreases may postpone investments and capital expenditures. Reduced economic growth and employment creation may result from this.

    Negative Feedback Loop: Decreased demand can result in reduced output, fewer jobs, and possibly even more deflation. Due to the negative feedback loop this causes, economic activity may be stifled.

    Less Wage Growth: In deflation, companies may be reluctant to raise salaries, resulting in less disposable income for consumers and further reducing demand.

    Using interest rates to either boost or restrain the economy, central banks often impose monetary policy constraints. If interest rates are already low, the central bank may have little room to cut them further in a deflationary scenario to encourage borrowing and spending.

In conclusion, deflation can foster a situation with less economic activity, less investment, and more real debt, resulting in an extended period of economic stagnation or recession.

GDP Per Capita and Deflation Discussion

Question Description

Help me study for my Economics class. I’m stuck and don’t understand.


  1. What is the definition of GDP and GDP per capita? What was the value of GDP and GDP per capita for US and China in 2014? What was the GDP growth rate for US and China in 2014?
  2. What is the consequence of deflation in terms of aggregate demand?
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