Answer to Question #86201 in Microeconomics for Nara

Question

Discuss whether GDP is a reliable measure of the difference in living standards between developed and developing countries?

Answer 1

GDP helps assess the growth of a nation's economy by focusing on the output of goods and services. The growth in this context implies the increase in the production of products and services in an economy or an increase in productive capacity. A country that produces a lot is most likely to pay higher wages, which means it is performing well economically. Therefore, yes GDP (preferable real GDP) is a reliable measure of the difference in living standards between developed and developing nations because it helps determine the level of productivity that different countries can handle, hence, helping assess the living standards in such countries. It is also paramount to note that when talking of the GDP as a measure of growth, the economic development of a country is also taken into account.