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The GDP per captia is $12,000 in Stephatania and $10,000 in Merksland. Does this mean that the living standards are higher in Stephatania?

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Introduction

Stephanie Merks The GDP per captia is $12,000 in Stephatania and $10,000 in Merksland. Does this mean that the living standards are higher in Stephatania? GDP per capita is a measure that can be used to compare living standards between two countries, such as Stephatania and Merksland. GDP, Gross Domestic Product, is a measure of the total national income received per year. When we want to use this figure to compare the living standards between two countries, we have to divide the country's GDP by its population. This gives us the average amount of money made per person per year. We can use GDP per capita to compare two countries by making assumptions that a country with a higher GDP per capita has higher living standards. There are three methods used to calculate national income: output method, input method, and expenditure method. The output method is when national income is calculated by adding up the total output of goods and services becoming available to a country during one year. This is the money spent on the primary, secondary and tertiary sectors. ...read more.

Middle

Exchange rates, on the other hand, are necessary for comparing two country's' GDP. There needs to be a common currency to be able to compare accurately, usually in US $ or Euros are used. In converting to a common currency, the exchange rates used could distort the comparisons if they do not reflect the purchasing power of two currencies. This is the amount that can be bought for a set amount of money in both countries. The exchange rate used may not reflect differences in price of goods therefore the Purchasing Power Parity should be used to give a more accurate comparison. Again, incomes and outputs that aren't declared to the government aren't put into the GDP calculations and potentially inaccurate estimations have to be made. Like the black or parallel economy, it varies in size between countries and therefore these estimations might distort the comparisons between the countries. Imputed values are counted into GDP calculations to make up for the self provided goods and services that cannot be counted. The GDP does not take into account the economic infrastructure of each country. ...read more.

Conclusion

The H.S.I. uses ten indicators of human well being like life expectancy, daily calorie supply, access to clean water, infant immunization, secondary school enrollment, per capita income, rate of inflation, communications, technology, political freedom and civil rights. According to this method counties like Denmark have the highest living standards, and countries like Mozambique have the lowest. The H.D.I. is another indicator that combines life expectancy, literacy and purchasing power into a measure. This measure proves that a higher GDP per capita does not mean a higher standard of living. Algeria, for example, has a higher GDP per capita than Sri Lanka; while according to the H.D.I. Sri Lanka has higher living standards. From these examples we can see that higher living standards do not necessarily come from a higher GDP per capita. There are many faults in calculating GDP, and in using GDP per capita to compare living standards between countries. Therefore, it is not a perfected measure to give an exact statement saying a country has higher living standards than another. Therefore, the answer to the question, with support from the above, is that no, Stephatania might not have a higher standard of living than Merksland because it has a higher GDP per capita. ...read more.

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