Final answer:
Determining the standard of living based solely on nominal GDP is incomplete as it does not account for inflation or population changes, and ignores factors like health and environmental quality that are crucial for a comprehensive understanding of living standards.
Step-by-step explanation:
If you attempt to determine if the standard of living of a country has increased by looking only at changes in its nominal GDP, you would be missing several critical factors. An increase in nominal GDP does not necessarily mean that standards of living are rising due to changes in prices and the population.
Nominal GDP measures the value of economic output without adjusting for price changes, which means that inflation can increase nominal GDP even if the real quantity of goods and services produced does not. Additionally, nominal GDP does not take into account changes in the population; per capita measures are needed for a more accurate assessment of individual prosperity.
A rise in GDP might understate the actual improvement in the standard of living. For instance, a greater variety of goods could enhance the quality of life but would not be directly reflected in GDP figures. Similarly, improvements in health outcomes, such as a decline in infant mortality rate, contribute significantly to living standards but are not captured by GDP computations.
The fact that GDP per capita does not fully capture the broader idea of standard of living has led to a concern that the increases in GDP over time might not truly reflect an improvement in well-being, especially if other factors such as human health and environmental cleanliness are deteriorating. However, this concern is often found to be overemphasized and does not always correlate with reality.