Gdp as a Perfect Measure of Living Standard Essay Example
GDP Imperfections – What Are They?
o GDP per head ignores environmental degradation and other exhaustible resource consumption. Since it’s called as a ‘sustainable consumption’ measure, it’s incorrect because in any case, sustainable consumption per head is not the same as wellbeing. It is NOT wellbeing.
o High GDP means high level of government expenditure or consumption which also initiate low level of saving. Low level of saving and/or high population growth condemn a country to a low GDP/head in the long run (unless there is a TFP growth).
Is GDP a Perfect Measure of Living Standards?
Economists estimate the average standard of living in a particular year in a particular country by taking the real GDP and dividing it by population. The ratio is called GDP per capita. This gives the average amount of income that each individual of the population potentially has access to. The more money each individual is able to access the higher the potential standard of living. GDP per capita is the usual measure of the standard of living. But this measure of the standard of living is also closely related to labor productivity.
Standard of living = real GDP/population
Labor productivity = real GDP/hours worked
So, it will become:
Real GDP/population = (real GDP/hours worked) (hours worked/population)
The ratio of hours worked to population can also be called employment rate. So It is also equal to labor productivity multiplied by the employment ratio.
Other things equal, an increase in the productivity level ought to be regarded as an increase in the quality of life. It means that people are working harder to produce more output. Productivity is more closely related to the real quality of life.
On the same hand, as productivity increases, so do the number of products and markets available. Similarly, as products become less expensive, due to more efficient production methods, the quantity demanded for some of those products also increases.
o GDP per head ignores environmental degradation and other exhaustible resource consumption. Since it’s called as a ‘sustainable consumption’ measure, it’s incorrect because in any case, sustainable consumption per head is not the same as wellbeing. It is NOT wellbeing.
o High GDP means high level of government expenditure or consumption which also initiate low level of saving. Low level of saving and/or high population growth condemn a country to a low GDP/head in the long run (unless there is a TFP growth).
Is GDP a Perfect Measure of Living Standards?
Economists estimate the average standard of living in a particular year in a particular country by taking the real GDP and dividing it by population. The ratio is called GDP per capita. This gives the average amount of income that each individual of the population potentially has access to. The more money each individual is able to access the higher the potential standard of living. GDP per capita is the usual measure of the standard of living. But this measure of the standard of living is also closely related to labor productivity.
Standard of living = real GDP/population
Labor productivity = real GDP/hours worked
So, it will become:
Real GDP/population = (real GDP/hours worked) (hours worked/population)
The ratio of hours worked to population can also be called employment rate. So It is also equal to labor productivity multiplied by the employment ratio.
Other things equal, an increase in the productivity level ought to be regarded as an increase in the quality of life. It means that people are working harder to produce more output. Productivity is more closely related to the real quality of life.
On the same hand, as productivity increases, so do the number of products and markets available. Similarly, as products become less expensive, due to more efficient production methods, the quantity demanded for some of those products also increases.