Business, 13.07.2021 07:00 maccaudill02

Assume two countries have the same nominal GDP (measured in the same currency using the same accounting rules). Give at least three reasons why you cannot assume that citizens in each country enjoy approximately the same level of economic well-being. Explain

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1. There might be different levels of price levels between the countries. The citizens in the country with the higher inflation would enjoy less economic wellbeing

2. Different populations. If GDP is the same and the population is different, the standard of living of citizens of the country with the higher population would be lower when compared with the standard of living of the country with the lower population

3. Different level of non-market activities. The country with the higher level of non-market activity would have more goods and services available for its citizens and this increases the standard of living of the citizens

Explanation:

Gross domestic product is the total sum of final goods and services produced in an economy within a given period which is usually a year

GDP calculated using the expenditure approach = Consumption spending by households + Investment spending by businesses + Government spending + Net export

Nominal GDP is GDP calculated using current year prices while Real GDP is GDP calculated using base year prices. Real GDP has been adjusted for inflation. It reflects the value of goods and services produced in an economy.

Factors that would make two countries with the same nominal GDP have the different level of wellbeing includes :

1. There might be different levels of price levels between the countries. The citizens in the country with the higher inflation would enjoy less economic wellbeing.

For example in country A, the real GDP is 20 while price level is $2. In country B, the real GDP is 10 while price level is $4. Nominal GDP in both countries is $40 but the price levels are different. Citizens in country A would have a higher standard of living when compared with citizens of country B

For example, the GDP of country A and B is 100. The population of country A is 10 while that of B is 20. The nominal GDP per capita in A is 10 and 5 in B. Citizens in country A would enjoy a higher standard of living when compared with citizens in country B

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in terms of experimental research, mcdonald’s charging different prices in the two cities relates to

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