Last year country A had a nominal GDP of R600 billion, a GDP deflator of 150 and a population of 40 million.Country B had a nominal GDP of R720 billion, a GDP deflator of 120 and a population of 50 million.From these numbers which country is likely to have had the higher standard of living?

Question

Quizplus · Accepted Answer

To compare the standard of living between countries, we need to use real GDP per person, which takes into account changes in the price level. Real GDP per person is calculated as nominal GDP per person divided by the GDP deflator.

For Country A, nominal GDP per person is R15,000 (R600 billion divided by 40 million), and real GDP per person is R10,000 (R15,000 divided by 150).

For Country B, nominal GDP per person is R14,400 (R720 billion divided by 50 million), and real GDP per person is R12,000 (R14,400 divided by 120).

Therefore, Country B had the higher real GDP per person and is likely to have had the higher standard of living.

Last Year Country a Had a Nominal GDP of R600