Question

In: Economics

Explain why per capita GDP might be an unreliable indicator of the standard of living. Please...

Explain why per capita GDP might be an unreliable indicator of the standard of living. Please discuss it in combination with other factors you think may also be relevant to the standard of living. Please use examples to support your answers

Solutions

Expert Solution

Standard of living (SOL) and Gross Domestic Product (GDP) are two different measures measures of the quality of life of people in a region. It being said. It is also important to note that GDP is composed of the total wealth that a nation has accumulated over the past years.

GDP is not a good measure of the standard of living because it doesn't point out the Happiness Index, Inequality rate, pollution, safety etc.A country like India specifically can have a high GDP and also high inequality which means the wealth of the country is getting accumulated at one side of the spectrum.\A best measure of the standard of living is the Human Development Index.

GDP does not capture the value of the black economy, which is especially large in developing countries like India. Also it does not capture the value of unpaid work, like housework.GDP counts as value, the money spent on rebuilding, after a natural disaster. GDP counts as value, military expenditure, during a war. It is questionable if either are really adding value to the economy.So a combination of measures can be used to measure standard of living. GDP per capita. GDP per capita at PPP. Human Development Index. Happiness surveys.

A country can have higher GDP even when the majority of its people are uneducated and unhealthy. That will not be a desirable situation if the standard of living is the concern. That is why human development indicators take into account indicators of the status of health and education, and the GDP.


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