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Evaluate the usefulness of GCP as a measure of living standards compared to other methods.

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Introduction

W.Feltham Evaluate the usefulness of GCP as a measure of living standards compared to other methods. One of the main uses of national income data is in measuring the economic well being of the population through the concept of the standard of living. The basic standard for this is to use GDP per person (per capita). But GDP per capita does have some limitations when assessing the standard of living. Firstly GDP does not take into account for the natural inflation; if inflation is not taken out of the equation then the GDP will overestimate the living standards of a countries population. This is the case because for example if a piece of machinery breaks down after use and a company buys a new one, inflation would have increased the price. So using GDP this would view this as an increase in the standard of living for the population which quite obviously is not the case. A better way to measure living standards would be to use real GDP which removes the factor of inflation and so give out a more realistic figure. Also GDP figures on their own do not show the distribution of income and the uneven spread of financial wealth but show an average. ...read more.

Middle

Education and training work to make people more productive and effectively, act as investments into what is known as 'Human Capital'. These three interlinked factors have significant effects on GDP but may not affect living standards for a few years and so my over estimate the living standards of a population. Rising national output might have been achieved at the expense of leisure time if workers are working longer hours A report released in August 1999, entitled Six Days a Week, claimed that more than a million managers and 656,000 professionals in the UK worked at least 48 hours a week. The study showed that the number of people working more than 48 hours a week has risen from 2.7 million to four million over the past 15 years. British workers have the longest working week in Europe, with full-time workers putting in an average of 44 hours - three and a half hours longer than the European average. All of these factors will have increased the GDP number but may lower the living standards of the population and so will not be a true reflection of what it is trying to show. GDP figures might understate the true living standards because of the existence and growth of the black economy. ...read more.

Conclusion

Moreover, some of Sen's freedoms can at times conflict, and without the benefit of numbers, it is difficult to know how to weigh the importance of each variable. A solution to such problems comes in the form of the Human Development Index (HDI) and other composite indexes. Which assigns numeric indicators of development to countries that allow for easy comparison, but these numeric values incorporate more than just GDP per capita. For instance, the HDI "is a simple average of three indexes reflecting a country's achievements in health and longevity (as measured by life expectancy at birth), education (measured by adult literacy and combined primary, secondary, and tertiary enrollments), and living standard (measured by GDP per capita in purchasing power parity terms. In this way, you still are provided with a single number for easy comparison between countries but include more information than simple GDP per capita. I have attempted to show that GDP is problematic as a measure of living standards. Ultimately, using GDP as a measure for living standards because GDP is a potential means to living standards and is not an end in itself. Therefore, it makes sense to examine living standards by composite measures of the ends themselves: life expectancy, infant mortality rates, literacy, education, happiness rates, etc. Specifically, alternative development indicators such as the HDI or the GPI are steps toward a more accurate and balanced approach to measuring development. ...read more.

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