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The Usefulness of GCP as a Measure of Living Standards Compared to Other Methods

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The Usefulness of GCP as a Measure of Living Standards Compared to Other Methods

One of the main uses of national income data is in measuring the

economic well being of the population through the concept of the

standard of living. The basic standard for this is to use GDP per

person (per capita). But GDP per capita does have some limitations

when assessing the standard of living.

Firstly GDPdoes not take into account for the natural inflation; if

inflation is not taken out of the equation then the GDPwill

overestimate the living standards of a countries population. This is

the case because for example if a piece of machinery breaks down after

use and a company buys a new one, inflation would have increased the

price. So using GDPthis would view this as an increase in the standard

of living for the population which quite obviously is not the case. A

better way to measure living standards would be to use real GDPwhich

removes the factor of inflation and so give out a more realistic

figure.

Also GDPfigures on their own do not show the distribution of income

and the uneven spread of financial wealth but show an average. Incomes

and earnings may be very unequally distributed among the population

and rising national prosperity can still be accompanied by rising

relative poverty. So by using GDPyou may be hiding the differing

extremes in a country.

There are certain things that are difficult to measure using any

statistical approach to living standards; these are also not reflected

in GDPstatistic. The GDPdoes not take into account social problems in

the community, and even though the statistics may be showing an

increase in in...

... middle of paper ...

...econdary, and tertiary enrollments), and living

standard (measured by GDPper capita in purchasing power parity terms.

In this way, you still are provided with a single number for easy

comparison between countries but include more information than simple

GDPper capita.

I have attempted to show that GDPis problematic as a measure of living

standards. Ultimately, using GDPas a measure for living standards

because GDPisa potential means to living standards and is not an end

in itself. Therefore, it makes sense to examine living standards by

composite measures of the ends themselves: life expectancy, infant

mortality rates, literacy, education, happiness rates, etc.

Specifically, alternative development indicators such as the HDIor the

GPIare steps toward a more accurate and balanced approach to measuring

development.
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