Question

Assume that over the last 10 years the gross domestic product of Econostan increased by 25%

while the population of the country increased by 35%. Over that time period, what likely

happened to the standard of living for people living in that country?

Answer 1

Standard of living refers to the amount and quality of material goods and services available to a given population. The commonly accepted measure of standard of living is GDP per capita.GDP per capita stands for Gross Domestic Product (GDP) per capita (per person). It is derived from a straightforward division of total GDP by the population. 

GDP is a common measure of economic development despite it's main weakness of ignorance of the population factor.

• An increased in GDP is a good indicator of improved living standards, ceteris paribus.

In Econostan there's an increase in GDP by 25% which is a good indicator but also there's a consequent increase in population by 35%, which is higher than the GDP by 10%. The standard of living of the population will therefore be lower since there will be a high population and less resources to be shared to the people due to low GDP.