U$.$K$.$ Living Standards Outstrip U$.$S$.$

Oxford analysts report that living standards in Britain are set to rise above those in America for the first time since the nineteenth century. Real GDP per person in Britain will be

pound$23,500$

this$$ year, compared with

pound$23,250$

in$$ America, reflecting not only the strength of the pound against the dollar but also the UK$$ economy's record run of growth since $2001.$ But the Oxford analysts also point out that Americans benefit from lower prices than those in Britain.

$$Source:

The

Sunday

Times$,$

January$6,2008$

If real GDP per person is greater in the United Kingdom than in the United States but Americans pay lower$$ prices, does this comparison of real GDP per person really tell us which country has the higher standard of$$ living?

Question content area bottom

Part $1$

A$.$

No$.$ To determine which country has the higher standard of$$ living, we need to use purchasing power parity prices.

B$.$

Yes. The difference in prices between the two countries is a temporary phenomenon. In the long$$ run, prices will be the same in both countries.

C$.$

No$.$ As long as the two countries use different$$ currencies, it is impossible to accurately determine which country has the higher standard of living.

D$.$

Yes. Using the market exchange rate to compare real GDP per person in two countries is the best method of comparing the standard of living.