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GDP - Gross Domestic Product
- It is the monetary value of all goods and services produced by factors of production within a country.

- There are 3 ways to measure GDP:
1. Product Method - total up all the output  in the country.
2. Income Method - total up income which have been earned for goods produced or services rendered.
3. Expanditure Method: record final expanditure (C+G+I+X-M)

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- Define standard of living:
The quality of life or the well being of the average person in a given population

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*GDP can be used to compare economic growth rates and living standards over time.
*GDP can also be used to compare living standards between countries (International Comparison)
*An economy is said to be doing well if GDP is growing at a high and sustainable rate.
*A high GDP means that there is a higher number of goods and services within the country.
*This means that consumers can enjoy more goods and services which could mean experiencing higher living standards.

*However, real GDP per head is the most frequent indicator used to compare living standards between countries.
-Real GDP per head takes account of inflation and population.
-Real GDP per head= (GDP-Inflation)/Population
-A country with higher real GDP per head indicates that people enjoy higher living standards as compared to those with a country with lower real GDP per head.

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GDP is not the best measure of living standard for several reasons:

1) Distribution of income
-For instance, 2 countries may have the same GDP figures but standard of living may differ.
-If the country has a more even distribution of income, people will enjoy higher living standards.
-In comparison, the people in the country where income is unevenly distributed will suffer from lower standard of living.

2) The hidden, informal or shadow economy
-This occurs when goods and services which are produced and sold are not recorded in official figures.
-Some people may not declare the income earned to the authorities to either evade paying taxes, in fear of losing benefits or the activity involved is illegal.
-Hence, GDP figures may be understated.
-A country with a larger hidden economy would experience a lower standard of living.

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3) GDP does not take into account of externalities.
- Externalities are spillover effects to third parties.
- Externalities such as pollution and trafic congestion are possible by-products of a rising GDP.
-  This could damage the enviroment and the health of the peope in the country which would not improve the quality of life.
- A country with a high GDP but with presence of externalities may not experiece a high stabard of living.

4) The human cost of production
-  This is when the rise in GDP is due to people working harder or longer hours, causing workers to lose their leisure time.
-  Things such as leisure and working conditions are not taken into account in GDP figures.
-  A country with a high GDP but has longer working hours and unpleasant working conditions may experience a lower standard of living compared to another country with the same GDP that is due to technological advancement.

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5) composition of total output
- in here we can simply say that when both countries have the same GDP but country A has devoted most of its resources to defense which most people dont use. Meanwhile, country B devotes most of their resources to defense and capital goods (explain that consumers prefer capital goods than defense). Hence country B has better living standards

6) national debt
-in this case we can explain that national debt is the total debt a central government or the whole public sector has built up over time. One can be budget surplus or budget deficit
-we can connect this to limitations of using GDP to measure living standards because,
-when 2 countries have the same GDP but one country has more national debt. Hence when there is more national debt, government owe more money which government could’ve used for expanding the economy. This will affect the future generations thus standards of living will fall in the future

7) non-marketed goods and services
- as mention in the intro, one of the ways GDP is measured is by income method. In here people who have officially stated their income will be take into account. However, incomes that aren’t stated officially (eg. Volunteer work) may not be taken into account
-therefore, when 2 countries have the same GDP but one country has more non marketed goods and services, it is said that the country with the most non marketed goods and services will have higher standards of living

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There are other alternatives to measures living standards

- Measurable Economic Welfare (MEW) is an alternative measure for living standards. It measures not only the total national output (GDP) but also includes the economic welfare of the country. This includes leisure time and the amount of unpaid work and the value of services over the year.

- Human development index (HDI) is based on three sets of indicators. Real GDP, Education (adult literacy and numeracy average years of schooling) and life expectancy.

- Human Poverty Index (HPI) was replaced by MPI in year 2010 but this measures longevity, adult literacy and deprivation.

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8) literacy rate
A country with a low literacy rate meaning that more people are less eduacated and knowledgeble. They may feel uhappy as their education are poor, therefore standard of living of that country will be low even if GDP is high.

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4) Multidimensional poverty index (MPI) -a composite  measure of deprivation in terms of households that lack the rquirements fot a reasonable standard of living.

5) kuznets curve - shows relationship between economic growth & income inequality. Y axis is inequality or gini coefficient.X axis economic development,time, or per capita incomes.

As economy develops inequality increases but after a certain income is reached inequality decreases. The rise in income inequality is that as economy develops, labour will move from low skilled & low paid to high skilled & higher paid.

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In conclusion, GDP is the best measurement to measure a country’s growth but it is poorly used when measured living standards. There are other measurements that are way more suitable to measure living standards as mentioned