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In: Economics

1. What is the primary way in which economists measure standards of living?

1. What is the primary way in which economists measure standards of living?

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Expert Solution

Most of the economist use  GDP per capita in order to estimate the standards of living of a nation.

GDP or Gross Domestic Product can be seen as the most comprehensive quantitative measure for determining the total economic activity of a country. Precisely, GDP is used to represent the monetary value of each product or service which is produced within the geographic boundaries of a country over a specified period of time.

The four components of the gross domestic product are personal consumption, business investment, government spending and net exports. ... The formula to calculate the components of GDP is Y = C + I + G + X. That stands for:

GDP = Consumption + Investment + Government + X (net exports, or imports minus exports.)

GDP and other related concepts such as per capita GDP, per capita real GDP are not the precise measures of the standard of living in a certain country. There are various productive activities which are not taken care in the GDP as it only determines or measures the output produced and sold in the legal market. However, this does not include the productive activities which are not included as legal market transactions.

The other criticism of GDP method is that it does not include the manner in which output contributes to the quality of life of a country’s citizens and quality of the environment.

Rahul Sunny answered 1 year ago
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