Which of the following is the key variable in determining changes in a country's standard of living?

• A. growth rate of real GDP per person
• B. level of government spending
• C. size of the labor force
• D. rate of inflation

Answer: (A)

Verified step by step guidance

1. Understand that the standard of living in a country is typically measured by the average income or output per person, which is captured by real GDP per capita (real GDP divided by population).
2. Recognize that changes in the standard of living depend on how this real GDP per person changes over time, which is expressed as the growth rate of real GDP per person.
3. Consider why other options like the level of government spending, size of the labor force, or rate of inflation are less directly related: government spending affects the economy but does not directly measure living standards; labor force size affects total output but not output per person; inflation affects prices but not real output per person.
4. Conclude that the key variable is the growth rate of real GDP per person because it reflects improvements in the average economic well-being and productivity of individuals in the country.
5. Summarize that focusing on the growth rate of real GDP per person allows economists to assess whether the average citizen is becoming better off over time, which is the essence of changes in the standard of living.