Changes in prices can shift aggregate demand, and therefore the macroeconomic equilibrium, as a result of three different effects: The wealth effect refers to the change in demand that results from changes in consumers' perceived wealth.
Since inflation causes real wealth to shrink and deflation causes real wealth to increase, the wealth effect of inflation will cause lower demand and the wealth effect of deflation will cause higher demand.
Austrian School economist Frank Shostak has noted: "The GDP framework cannot tell us whether final goods and services that were produced during a particular period of time are a reflection of real wealth expansion, or a reflection of capital consumption.
In reality, however, the building of the pyramid will divert real funding from wealth-generating activities, thereby stifling the production of wealth. " GDP as an Evaluation Metric Although GDP provides a single quantitative metric by which comparisons can be made across countries, the aggregation of elements that create the single value of GDP provide limitations in evaluating a country and its economic agents.
GDP per capita income as a measure of prosperity GDP per capita is often used as average income, a measure of the wealth of the population of a nation, particularly when making comparisons to other nations .
It is easily calculated from readily-available GDP and population estimates, and produces a useful statistic for comparison of wealth between sovereign territories.
Malthusian Trap: Named after a political economist named Thomas Robert Malthus, the Malthusian trap simply states that increases in efficiency tend to result in population growth rather than wealth growth.
Increased productivity within a system is only useful if it translates to an increase in per capita wealth.