Limitations of gdp comparing living standards

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Limitations of gdp comparing living standards

This is national income divided by population and gives a rough guide to average incomes. High real GDP per capita indicates citizens are able to purchase more goods and services.

However, there are several difficulties in using GDP to measure living standards. Difficulties measuring living standards 1. However, living costs are likely to be much lower in Namibia than say the US. Therefore, it is important to take these factors into consideration when comparing living standards between countries If we use GDP per capita in purchasing power parity PPP then income differentials are smaller.

Economic activity not measured. For example, in a country like Namibia, there is likely to be a significant degree of subsistence farming.

This makes zero contribution to GDP statistics because nothing is officially produced, but people may have decent living standards. Higher GDP suggests higher living standards, but higher economic growth may be at the cost of increased pollution and congestion. This leads to a decline in living standards poor health from pollution, time wasted from congestion therefore GDP overestimates living standards.

This has been an issue for countries like China — whose breakneck economic growth has been at the expense of pollution. Living standards need to take into account how income and expenditure are distributed through society. A country may have high GDP per capita but still have significant poverty.

Limitations of gdp comparing living standards

Living standards are not just about consumption of goods and services. This becomes difficult to quantify from an economic perspective. Access to education is considered an important aspect of living standards.

Without education, people will struggle to obtain their potential and their human capital will be lower. Education can also improve living standards in non-monetary ways — enjoying a greater degree of culture 8. What do we mean by living standards? Some may think of living standards through financial measures e.

Other measures of living standards 1.GDP fairly estimates the standard of living in the economy to help the Governments fulfil their policy and compare to other economies.

So, GDP is a rough guide to living standards. We could not ignore that a large GDP does in fact help us to lead a good life. Living standards tend to move with GDP per capita, so we can assume that the changes of living standards can be reflected in the changes of GDP per capita.

Inflation rate in a country is mainly the cause of a subtle reduction in a country’s standard of living. It wont give living standards and income averages which is important when comparing countries in which better measures are; GDP per capita as it shows output per person GDP/Population.

This can show the living standards within a country also. Limitations of using GDP statistics. GDP statistics are widely used for comparing economic performance of developing countries, but they can be criticised for several reasons..

Differences in the distribution of . GDP (nominal) per capita does not, however, reflect differences in the cost of living and the inflation rates of the countries; therefore using a basis of GDP per capita at purchasing power parity (PPP) is arguably more useful when comparing differences in living standards between nations.

Although GDP is used widely, frequently and consistently, there are limitations of GDP per capita as a comparable measure of living standards. GDP is divided by the population to estimate living standards of the citizens in a particular economy; however, the welfare of the society could be an inaccurate reflection as GDP per capita is .

Difficulties in measuring living standards | Economics Help