Final answer:
Economic growth is significant as it raises living standards by increasing production and income. Concerning GDP's relation to living standards, environmental issues can make GDP overstate the standard of living whereas declines in crime rates, a greater variety of goods, and reduced infant mortality can lead GDP to understate the improvements in living standards.
Step-by-step explanation:
An important effect of economic growth is that it raises living standards. Economic growth is typically associated with an increase in the production of goods and services, leading to higher incomes, better education, and the ability for the population to grow. When discussing the degree of change in the broad standard of living in relation to GDP, several instances can cause the GDP to either overstate or understate this change:
- A dirtier environment would actually decrease the standard of living, but GDP might not capture this, leading it to overstate the actual standard of living.
- A decline in the crime rate improves the standard of living, but this is not directly accounted for in GDP, meaning a GDP increase could understate the improvement.
- The availability of a greater variety of goods enhances the standard of living; however, this is not directly measured by GDP, causing an understatement in its change.
- A reduction in infant mortality is a significant indicator of better living conditions, yet it is not reflected directly in GDP measurements, implying that an increase in GDP may understate the rise in the standard of living.