Question

In: Economics

India to Be Home to 437,000 Millionaires by 2018 India, with the world’s largest population of...

India to Be Home to 437,000 Millionaires by 2018 India, with the world’s largest population of poor people, is creating millionaires at a rapid pace and by 2018 is projected to have 437,000 millionaires measured in U.S. dollars. That is 1 millionaire for about 1,600 people living on less than $2 a day.

Source: The Times of India, July 8k, 2015

a) Why might real GDP per person misrepresent the standard of living of the average Indian?

b) Why might $2 a day underestimate the standard of living of the poorest Indians?

Solutions

Expert Solution

The real GDP per person misrepresent the standard of living of average Indians because :-

  1. The price which are used to value the production in India to calculate the GDP of India are quite different from the price used in U.S.A to calculate the GDP of USA.
  2. There is also a reason why the calculation of real GDP per person misrepresent the standard of living of average Indians, is that only those goods are included in GDP which are bought and sold in market.

The reason why $2 a day underestimate the standard of living of poorest Indians because the estimate is made using prices that prevails in India and as compared to price using in USA. The price which uses in India are generally lower than in USA if we compare purchasing income in USA understates the standard of living. Also as we know that many people undertaking are not included in market because GDP is calculated using only goods and services which are bought and sold in market.

Rahul Sunny answered 2 years ago
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