GDP stands for Gross Domestic product, which is the market value of all final goods and services.
The difficulty of comparing countries using GDP;
Therefore, it is not very accurate to measure the standard of living using GDP since exchange might mislead the figure.
For example, in Malaysia, the price of massage salon is much cheaper than in Japan.
That is because....
Therefore, there are miscounting in the productivity of the 2 countries due to those factors that lowers the GDP of Malaysia.
GDP of Japan (2012) - $ 5960,180 million (3rd in the world)
GDP of Malaysia (2012) - $ 304,726 million (34th in the world)
Japan is a developed country and Malaysia is considered less developed then Japan so the GDP of Japan is obviously higher. However, It might be miscounted in terns of the "value" of the goods and services that are produced in the countries.
The difficulty of comparing countries using GDP;
- Exchange rate fluctuates significantly over short periods of time, implying implausibly large swing in "standard of living"
- Exchange rate are more relevant to goods that are exchanged, tradables rather than to non-tradables (services). Non-tradables tend to be cheaper in poor countries. whereas, manufactured goods are similar prices anywhere in the world.
Therefore, it is not very accurate to measure the standard of living using GDP since exchange might mislead the figure.
For example, in Malaysia, the price of massage salon is much cheaper than in Japan.
That is because....
- Japanese yen is stronger than Malaysian RM.
- Labor in Malaysia is cheaper than in Japan
Therefore, there are miscounting in the productivity of the 2 countries due to those factors that lowers the GDP of Malaysia.
GDP of Japan (2012) - $ 5960,180 million (3rd in the world)
GDP of Malaysia (2012) - $ 304,726 million (34th in the world)
Japan is a developed country and Malaysia is considered less developed then Japan so the GDP of Japan is obviously higher. However, It might be miscounted in terns of the "value" of the goods and services that are produced in the countries.