Question

An inexperienced researcher wants to examine the average standard of living in two countries. In order to do so, he compares GDP in those two countries. This comparison will not lead to an accurate measure of the countries’ average standards of living because of differences in____________.a) population and unemploymentb) inflation and unemploymentc) price levels and interest ratesd) price levels and population

Answer 1

This comparison will not lead to an accurate measure of the countries’ average standards of living because of differences in "inflation and unemployment".

Answer: Option B

Explanation:

The inverse correlation in an economy represented in graph, between the inflation rate and unemployment rate is understood as "Phillip Curve". This relationship showcase that when unemployment increases than inflation decreases while when unemployment decreases than inflation increases.

GDP gives details about the living standard of nations with respect to goods and services manufactured in nation's boundary line, thus these two factors affect the accurate comparison standard of living among nations. In such relation, inflation affects aggregate demand's price-level component, while unemployment, which depends on aggregate demand's actual production portion.