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Macroeconomic Theory - "Chasing the Leader".

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Introduction

Justin Smith Macroeconomic Theory "Chasing the Leader" Assignment 3/19/03 This is an article comparing the living standards of the U.S. and Europe. The U.S uses GDP per capita and Europe uses GDP per head to measure their living standard. In examining the living standards between these two countries, the author looks at both productivity and GDP in his analysis. America has been the world's economic leader for over a century. Economic theory suggests that Western Europe is catching up. GDP per head is only three-quarters of that in the U.S., but European productivity, measures by output per hour worked, has in fact almost caught up with the U.S. Europe's productivity has been in a surge since 1950. ...read more.

Middle

In part, this reflects a preference for shorter working weeks and longer holidays. The author looks at Robert Gordon, an economist at Northwestern University. Mr. Gordon has researched the living standards in the US and Europe, and points out reasons why using GDP is not an efficient way of measuring livings standards. Mr. Gordon argues that there should be a broader analysis of living standards, based on economic welfare rather than crude GDP. This would place value on European's greater leisure time. Mr. Gordon says that after adjusting GDP per head for extra leisure time, the GDP of Europe would increase to about 82% of that in the U.S. Mr. ...read more.

Conclusion

If I was to come up with a living standard, I would suggest we don't just look at GDP, but other measures like GNP as well. Then I would want to find an average person amount. (per capita or per head). This would expand the amount of resources involved in calculating living standards. After that, I do think there needs to be some sort of way of considering economic welfare (as Mr. Gordon suggests), so the U.S. doesn't have as much weight in calculating living standards. In this case U.S. company's producing goods in Europe would be calculated in Europe's living standard as well as America's. I would be interested in maybe just looking at the GNP's of US and Europe, and totally disregarding GDP. Yes, GDP is perhaps the most important component needed to determine living standards, but its not the only way. ...read more.

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