Gdp and the Standards of Living

Topics: Inflation, Economics, Quality of life Pages: 2 (752 words) Published: March 16, 2012
Standards of living can be evaluated by the measure of GDP, level of inflation, net exports and fiscal balance. Evaluation by using the GDP as an indicator would be relevant as it reflects the total national economic activity and the level of wealth of the society. GDP per capita is adjusted for the size of the economy in terms differences in price levels and also population of the country. There are many factors that would affect the standard of living in a country. Some that cannot be measured by the GDP and some that can be directly reflected by the GDP. GDP will be able to give us a rough idea on how the standard of living is in a certain country. 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. Inflation causes the price level of goods and services to increase according to the rate of inflation. Citizens that live off a fixed-income such as retirees receiving pension, will see a decrease in their purchasing power and eventually result in a decrease in their standard of living. Inflation would significantly affect retirees as retirees will have higher targets for their savings to maintain the same standard of living. Consequently, they will have to save more to pay for more expensive things in the future. On the other hand, if a country is facing deflation, meaning the general prices of goods and services decrease, citizens would be able to buy more things, and obviously have a better standard of living. As for Indonesia, their rate of inflation is at a high point of 5%. This will cause prices of goods to be increase. Thus, citizens would have to spend more causing a decrease in purchasing power. The poor people would not be able to afford goods and services that they would usually be able to pay for. This lowers the standard of living in that...
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