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  • Toby Marsden

How Useful is GDP in Measuring Living Standards?

The Gross Domestic Product (GDP) measures the value of economic activity within a country. Strictly defined, GDP is the sum of the market values, or prices, of all final goods and services produced in an economy during a period of time. GDP is important as it gives information about the size of an economy and how an economy is performing both developed or developing. It’s often used as an indicator of the general health of the economy. However, using GDP data can vary in usefulness as some economies, especially developed ones, can’t grow much more without being sustainable and allocating resources efficiently so therefore using GDP data can reflect badly on an economy.

A developed economy is one in which there are relatively high levels of economic growth and strong security. Using GDP data to look at the living standards of an economy is not that useful as it’s only an indicator of a society’s standard of living. Therefore, it’s a rough indicator because it does not directly account for leisure, environmental quality, levels of health and education and activities that take place outside the market. Furthermore, GDP is a generalised term used for a whole economy and therefore does not represent certain areas of the UK’s economy that are doing very badly and actually have very poor living standards.

However, a developing economy is an underdeveloped country that has less developed industrial base. In places like Bhutan, a different measure of economic productivity is used to represent their country. Although the bar chart of Bhutan’s GDP makes it out that there living standards would be relatively good as they have had consistent economic growth. However, Bhutan believe that a human wellbeing measure is best as it allows the actual population to have a say in what their living standards are like. Therefore, using GDP data isn’t that useful as it doesn’t represent the whole population and their opinion.

However, although this alternative measure of living standards works for Bhutan, it’s not realistic in macroeconomics as Bhutan is a small country that’s main industry is tourism. So for a country like the UK the wellbeing measure wouldn’t work as it would be too complicated to realistically carry out. Furthermore, an alternative measure for a developed country like the UK would be GDP per Capita. GDP per Capita is a measure of a country’s economic output that accounts for its number of people. It takes the country’s GDP and divides it by the population. This makes it a good measurement of a countries standard of living as it tells you how prosperous a country feels to each of its citizens.

In conclusion, GDP by itself is useful in developed countries as it gives an accurate representation of a country’s progress and economic level. This generally has a direct correlation to the living standards of the country. However, in developing economies, GDP isn’t that useful as the although the country may be growing, there will be a lot of areas of population that haven’t quite moved with the economic growth of some areas. Overall, GDP per capita is the most useful in developed and developing countries as it not only shows the economic prosperity but also represents the wellbeing of different populations within that country which, therefore, is the most useful way to measure living standards in developed and developing countries.


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