What is the most important factor that explains differences in living standards across countries?

The correct answer is letter "C": productivity.

Explanation:

Productivity describes the output relationship compared to the inputs required to produce those outputs. It is an efficiency indicator. The total production of a country for a given period is calculated by computing its Gross Domestic Product (GDP).

When GDP is divided by the total population of a country, it is called GDP per capita, reflecting average individual expenditure. This metric makes it possible to have an idea of what those people's lifestyles are.

An increase in overall levels of prices in the economy

Explanation:

Increment of the whole prices in goods, services and commodities will affect a nation and it will show which country is capable of withholding such standard of living.