GDP per Person and Living Standards

Total GDP shows the size of an economy, but dividing it by population gives GDP per capita, a rough measure of average income. India's total GDP is larger than that of Switzerland, yet its average income is many times lower because it has over a hundred times as many people. Per capita figures correlate strongly with life expectancy, schooling and access to clean water, which is why economists use them as a starting point for comparing living standards.

Yet an average can hide great inequality: a few very rich households can raise the mean even if most people remain poor, which is why the median income is often more informative. Growth rates matter enormously over time; an economy growing 2 percent per person each year doubles average income in about 35 years, while 7 percent doubles it in about 10. Small differences in growth, compounded over decades, explain much of today's gap between rich and poor nations.