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What is GDP and is it a useful indicator to measure the standard of living?

1) GDP- is the value of all goods and services produced by the economy in a given period (year, quarter...)

Quantity of goods x Price of goods

Nominal GDP- measures values using current prices. (Prices of G&S increase & Quantitiy of G&S increase)

Real GDP- measures values using prices of a base year -value they would have been in the base year- (Prices constant, only quantity increases)

Therefore- Nominal GDP > Real GDP -due to inflation

(Extra Time- Explain Local currency GDP vs PPP GDP)

2) GDP reflects a better standard of living- higher consumption)

GDP looks at demand side- households, govt, firms & forerigners

GDP = C+I+G+X-M

Investment goods- buildings, plants, capital equipment

Sales of used goods, or black market activity not included in GDP.

Distinction in quality & quantity growth, no accounting for depletion/pollution, inequality

Alternatives- HDI (GDP, health, education), LSE growth commission- median household disposable income

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