Discuss the view that GDP has little value in the assessment of standard of living because it tells us nothing about quality of life.

  1. INTRODUCTION

Define GDP. Define standard of living.

Interpret question: GDP data can provide a fairly good assessment of material well- being and hence SOL  if an appropriate statistics  such as  real GDP per head is used. However, need to register some reservations because real GDP per head has measurement & usage problems, it ignore quality of personal & family life as well as  environmental issues.

  1. DEVELOPMENT

1.  Disagree with the view and explain why real GDP per capita has much value in gauging SOL.

Real GDP per capita figures has much value because it tells us the material well-being of the people. A rise in real GDP per capita measures the increase in real output available to a person. Assuming that non material well-being is fairly constant over time, an increase in real GDP per capita represents an increase in material well-being. Higher standard of living is attained. 

2. Explain why the value of real GDP per head in gauging SOL is limited by measurement and usage problems.

However, need to register some reservations of GDP figures in assessing standard of living. The value of GDP data such as real GDP per head in the assessment of standard of living is limited because it hasmeasurement & usage problems

Inaccurate data (Measurement problems) :

(i) Non-marketed goods and services: Goods and services which are produced but not traded or exchanged through barter exchange through barter trading goes unrecorded. Hence, the GDP may be understated by the extent of non-marketed activities.

(ii) Undeclared economic activities : People may not declare the tax authorities the incomes they earn in an attempt to evade paying tax. Hence, the presence of undeclared activities tends to understate the real GDP figures.

Unequal income distribution (Usage problems):        

Real GDP per capita figures are of little value because changes in income distribution ignored. Even if real GDP per capita were to increase over the period, if the income gap is getting bigger, not all residents may actually experience an improvement in SOL. Hence we will probably need to supplement data on GDP with measure of income distribution such as Gini Coefficient. 

3. Explain why the value of real GDP per head in gauging SOL is limited as it ignores quality of personal & family life as well as environmental issues.

The quality of personal & family life as well as environmental issues cannot be reflected using only GDP data as it considers only partly, the material well-being.

(1) Quality of personal & family life

Faster growth in real GDP per head if accompanied by

à Reduction in no. of leisure hours, family time

à Poorer health due to stress & overtime etc.

Will means that the increase in GDP overestimates the increase in SOL.

(2)Environmental considerations

The quality of the environment in which we live has an impact on our quality of life – and hence on living standards

à Potential trade-off between increase in real GDP per head and environment standards.

à An all-out pursuit of higher GDP per head may lead to deterioration in environmental conditions

4. Explain the need to supplement real GDP per head with other significant indicators.

Hence, it is important to examine a wider range of indicators e.g. distribution of income and other quality of life indicators e.g. life expectancy, hours worked, pollution to get a fuller picture. Explain the link between QoL indicators to SOL.

  1. CONCLUSION:

Make reasoned judgement.

In conclusion, real GDP per capita has much value among all macroeconomic indicators in assessing standard of living, but it is not perfect or infalliable.  This is because while it provides direct information about the purchasing power of its citizens it fails to account for the quality of life as mentioned in the signpost. The failure to account of QoL is not the only shortcoming of the indicator. It also has measurement and usage problems. 

Leave a Comment

Your email address will not be published. Required fields are marked *