What are some disadvantages of using GDP as a measure of living standards?
- GDP does not include the hidden economy. This includes illegal activities such as the drug trade, which constitutes a significant proportion of total output in some countries.
2) Living standards is a broader measure than economic growth alone. Living standards also includes factors such as the quality of the environment and freedom from crime. This is an important distinction between living standards and economic growth.
3) GDP must also be adjusted for differing costs of living in countries, inflation, and population size. This is done by using Purchasing Power Parity to adjust for GDP, and using real GDP statistics to adjust for inflation and also dividing by the total population size.
