Question

"If country A has a higher level of real GDP per person than country B, then people in Country A must enjoy a higher standard of living than people in Country B." Is this statement true or false (1 point) and explain your answer

Answer 1

Not Necessarily True

Step-by-step explanation:

GDP is the total value of goods & services produced by an economy, during a given period of time.

It - reflecting flow of goods & services in an economy can be a measure of welfare , but is considered an imperfect measure of welfare because:

• Non Monetary Transactions : Many qualitative transactions - difficult to measured monetarily, lead to increase in welfare but are not recorded in GDP. Eg : Services of housewives
• Externalities : Positive or negative effect to other parties - without monetary exchange for the same , lead to change in welfare but are not recorded in GDP. Eg : Negative Externality - Pollution.
• Distribution of Income : Income Inequalities might not assure availability of average per capita income & decent standard of living for all population, so don't ensure welfare for all.
• Composition of Income : GDP might be owing to value of all produced goods & services, including those which have no or negative impact on welfare. Eg : Addiction goods.