Even though it is not a perfect measure, economists can use real GDP to

i. compare how the value of the goods and services produced in China have changed
over the past 10 years.

ii. look at the length of recessions and expansions in the United States.
iii. compare the standard of living in China versus the standard of living in Vietnam.

Question

Even though it is not a perfect measure, economists can use real GDP to

i.	compare how the value of the goods and services produced in China have changed
over the past 10 years.

ii.	look at the length of recessions and expansions in the United States.
iii.	compare the standard of living in China versus the standard of living in Vietnam.

BlackTom AI · Accepted Answer

The question presents three statements about how economists can use real GDP, with the prompt noting it is not a perfect measure.

Statement i: 'compare how the value of the goods and services produced in China have changed over the past 10 years.' This is a legitimate use of real GDP. Real GDP tracks the total value of production adjusted for price changes, allowing comparisons of economic output over time. It removes inflation so you can observe changes in actual production, making it appropriate for the 10-year comparison.

Statement ii: 'look at the length of recessions and expansions in the United States.' Real GDP data are commonly used to identify and gauge the duration of economic contractions (recessions) and expansions, by monitoring declines and increases in real GDP. While other indicators exist, real GDP is a standard, widely used measure for characterizing the business cycle, including how long these phases last.

Statement iii: 'compare the standard of living in China versus the standard of living in Vietnam.' Here is where nuance matters. Real GDP by itself measures total output, not how many people share that output. To compare standard of living across countries, economists typically use real GDP per capita (real GDP divided by population) because it accounts for differences in population size. Using real GDP alone can be misleading when comparing living standards across countries with different population levels.

In summary, statements i and ii describe valid uses of real GDP for time-trend outputs and business-cycle durations. Statement iii is problematic as a measure of standard of living, because it ignores population size; per-capita measures are generally more appropriate for cross-country living standards.

Note: If one were constrained to use only real GDP (not per capita), one would still be able to compare aggregate output across countries to some extent, but it would not provide a clear picture of relative living standards due to demographic differences. This highlights why iii is considered less suitable than using real GDP per capita for standard-of-living comparisons.

ECON 210-003 Homework 3

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