Gdp And Economic Welfare Essay

Gross Domestic Product (gross domestic intersection tailor) is the most historic sparingalal indicator and it is used for comparison purposes to see how countries atomic number 18 doing economic wise. It entails the aggregate production or turnout in a hoidenish. gross domestic product can be measured using either the expenditure ascend where al star final expenditures atomic number 18 added or by the income approach where all compensations of employees and other forms of incomes are added up. gross domestic product is used to measure an scrimpings economic g trim downingset. Hartzenberg T et al (2005, 114). The real gross domestic product can be used to establish how an economy is performing and hence pedigree miscellaneous economies as one can compare their outputs.It is also authorised in the sense that it can be used for forecasting purposes and hence weighty in planning. This paper will distinguish the difference between economic growth which can be measured using GDP statistics and subject offbeat or mickles head being. According to McConnel and Brue in their distinguished book Economics, a unpolished can be said to prolong economic growth when there is a validatory increase in its GDP. Economic growth is different from economic wel out-of-the-way(prenominal)e and economic development.Economic growth is characterized by an increment in inseparable resources, the quantity or quality for the human resources, as sanitary as an advantage in technology that empathises to increased productivity. Economic growth refers to a positive shift in the production possibility curve to the proper(a) or where economic efficiency is attained. McConnel and Brue (2005, 149). A plain A could study a high GDP than surface area B moreover this does non necessarily mean that country A is doing amend in price of economic upbeat as there is a clear quality between economic growth and national wel fartheste.This can be diabolical on the limitations attached or kinda linked to GDP calculation and analysis. (facstaff. uww. edu). Walter in the book Economics, noned that GDP ignores or rather omits household production which is an important sector in as far as determining the welfare of populate is concerned. Wessels W (2006, 75). Alan and Laurence backed this desire in their book Macroeconomics an integrated approach where they argued that GDP does non aim for the un subject fielded incomes which are earned in the underground economy.A good illustration of unreported incomes is a situation where waiters demote to report all the tips they acquire period on duty. People may fail to report their actual incomes to evade taxes. Statistical problems could also have occurred creating the look that country A had a higher GDP than country B though this may not be actually be the case. near people may not divulge all the information regarding their incomes or expenditure leading to persecute GDP estimates. If countr y B has a very probative underground economy then her citizens could be doing better than those in country A compensate though the latter had a impose GDP.This is an indication that high GDP rates do not necessarily translate to better welfare for the citizens. Auerbach and Kotlikoff (1998, 136). When cipher GDP the position of leisure is ignored although it is very critical in as far as be peoples welfare is concerned. province A could throwaway a higher GDP than country B further the citizens in country A could have been overworked leading to headspringness complications. In this case, the high GDP could be at the expense of the peoples health and we cannot conclude that it ensured their welfare or puff up being. Wessels W (2006, 75). apply GDP figures to determine the peoples welfare is inappropriate as it fails to complicate ecological costs incurred in the process of attaining the said GDP. bionomic costs include the costs of defilement. realm A could register a higher GDP than country B due to the fact that country A had better technology that ensured increased production. However, the increased production could have been realized in the face of increased air, water and land pollution all of which poses health hazards to the citizens. Wessels W (2006, 75). When such is the case then we cannot conclude that country B is doing better than country A.Peoples well being encompasses the peoples health and not just their economic well being. A country with cut down GDP just ensuring that her surroundings is safe for her citizens is doing well in ground of national welfare even though it could record a lower GDP than one with a higher GDP just has a polluted environment. GDP ignores a countrys environmental quality and it fails to account for the consequences that an economic growth could come along with. Auerbach and Kotlikoff (1998, 136). GDP also focuses on output or production although it is consumption that could best explain peoples w elfare.For guinea pig country A could sell more goods to other nations like country B since the posit for such goods in country B is higher. In this context, country B could be doing better than country A but since country A exports more it may create the impression that it is doing better. On the other hand, country B may register a lower GDP translating to being worsened off as her net exports are negative but in the real sense they could be doing better. instruction only on the output approach would lead to distortions while addressing the hump of national welfare.Another critical offspring cited by Wessels as a limitation of using GDP to evaluate a countrys or nations well being is the fact that presidential term spending is valued at cost rather than at its value. organization projects in country A could have been at a higher cost than those in country B but an important prospect to consider here is how much the projects were worth to the citizens. This is because some important projects could be undervalued while worthless projects are overvalued and this will have a significant impact in as far as influencing the peoples welfare or well being is concerned.Wessels (2006, 75). GDP calculation does not include the plight of the people in terms of health and sustenancespantime expectancy which are quite important in assessing the peoples well being or welfare. Country A could have a higher GDP than country B but if she has a lower life expectancy rate and is performing poorly in terms of general health of her citizens then we cannot argue that her citizens are better off than those of country B especially if in country B the life expectancy and general health is better.Health which is a very important factor in determining the peoples welfare when calculating a countrys GDP peoples conditions health wise are only included if they increase the costs of the health outline. A countrys health costs could be attributed to newfangled and advanced hea lth technologies but this does not guarantee a nations well being health wise as the costs incurred may not match the benefits attained. Democracy or political freedom is an important set off in determining peoples welfare. swell governance is one where respective freedoms are respected and most importantly democracy embraced. utilise GDP to evaluate peoples welfare is inappropriate as it does not provide any information regarding a countrys governance. Country A could register a higher GDP than country B but the political organization in country A could be oppressive to the citizens. In this context, we cannot argue that country A citizens are better than those in country B which could be exercising democracy and consequently not oppressing her citizens. (facstaff. uww. edu). Another vital issue in defining peoples well being is assessing social justice in a country.If country A registered a higher GDP but was very poor in terms of the civil justice system then we cannot conclud e that her citizens well being was ensured. Country B citizens could be doing better at a lower GDP level if she ensured an potent social justice system. An effective system ensures that the rule of law is embraced and peoples rights respected. This is important in ensuring that corruption which threatens peoples welfare as it only benefits a segment of the total population is unbroken at bay. Using GDP to compare the well being of people in country A and B could give a wrong impression of what is actually the case.This is attributed to the fact that a country could have overly adjusted for inflation leading to the impression that increase in prices translate to hikes in prices even when this could be as a result of improvement in the products produced. Morse S (2004, 39). Another aspect that makes it inappropriate to compare countrys welfare using the GDP statistics is the fact that for such comparisons one must convert the currencies into the other countrys currentness and when carrying out the conversions it is possible to understate a countrys GDP especially in the developing nations.A country A could register a higher GDP than country B due to errors arising from conversions of currencies. (facstaff. uww. edu). Country A could have a higher GDP than country B but her citizens could be worse off than those of country B in terms of national welfare. This is attributed to the fact that country A could be characterized by many social evils as opposed to country B. Failure to include the non-market production in the calculation of GDP makes it an inappropriate tool in determining peoples welfare in an economy.Such run like childcare, subsistence farming and care for the aged mean a attracter in as far as peoples welfare is concerned. Country A could have a higher GDP but with a lower subsistence economy when compared to country B. A significant subsistence economy would ensure that a countrys food security is ensured and this would menage her citizens at a better stance in as far as their well being or welfare is concerned. GDP fails to account for the effects or consequences of technology which has an impact in its determination.In contrast GDP is more concerned on the value of the end product without taking to concern the efficiency of the technologies in question. If country A registered a higher GDP than country B but country As organization invested more in sectors like education and health ensuring that her citizens were better off in those areas then we can conclude that country Bs welfare is doing well even if it has a lower GDP than country A. Treating investment in education and health as consumption rather than investments makes it difficult to estimate peoples welfare. Willis I (1997, 164).Distribution of resources in a country is also a point to consider when using GDP figures to estimate peoples welfare. Country A could register a higher GDP than country B but this high GDP could have been arrived from a small unimp ortant proportion of the total population. This is to say that it is inappropriate to say that country A citizens are doing better than those in country B as the GDP is contributed by a small proportion while a gigantic proportion of the society could be languishing in poverty. Income distribution is of much upshot when determining peoples welfare in an economy.The inequality issue and GDP arise more so in developing countries or third world as opposed to developed ones. Willis I (1997, 164). cordial issues like family stability are also not reflected when calculating GDP although it has an impact on peoples welfare or well being. GDP in country A could be higher than that in country B as more money is being channelled into nonrecreational divorce cases lawyers or building more police posts in reply to increased crime rates. This illustrates that it is inappropriate to make conclusions about peoples welfare using GDP.In his book The Japanese Economy, Mitsuo Saito celebrated th e inappropriateness of GDP as a tool of evaluating peoples well being due to the fact that it does not indicate the drudge conditions, housing conditions, state of the social security or the urban life which are crucial in determining peoples well being. Saito M (2000, 13). Economic growth could be based on either the demand side or the supply side of an economy. The aggregate demand could increase due to an increment in the population size while aggregate supply could be due to the discovery of new subjective resources.Aggregate output is postulateed by the level of labour supply, the run of accumulated capital, level of technology as well as the institutions in place. There is an inverse relationship between prices levels and output and when prices levels fall the output increases. Tanzi and Chu (1998, 203). Monetary and fiscal policies in a given economy would affect the countrys well being or welfare. The peoples welfare will be affected by the policies that an economy embra ces. Good policies are those that aim for equitable economic growth in a nation. They ensure that the poor in the society are not worse off but instead uplift them.This can be achieved through and through the application of equitable taxes such that peoples ability to comport is what determines the amount they are to profit all taxes. The rich will pay a higher amount than the poor in such cases. The government could also apply fiscal policies to ensure development for the poor in society.References Alan J. Auerbach, Laurence J. Kotlikoff. 1998. Macroeconomics An Integrated Approach. MIT Press. Bernard Baumohl. 2007. The Secrets of Economic Indicators Hidden Clues to Future Economic Trends and Investment Opportunities. Wharton school Publishing. Campbell R. McConnell, Stanley L.Brue. 2005. Economics Principles, Problems, and Policies. McGraw-Hill Professional Publishers. Measuring GDP and economic growth. Retrieved on twenty-third November 2008 from http//facstaff. uww. edu/ahmady /courses/econ202/ps/sg3. pdf Mitsuo Saito. 2000. The Japanese Economy. World Scientific Publishers. Ian Wills. 1997. Economics and the Environment A Signaling and Incentives Approach Allen & Unwin Publishers. Stephen Morse. 2004. Indices and Indicators in Development An Unhealthy Obsession with come? Earthscan Publishers. T. Hartzenberg, Buck Standish, A. Wentzel, V. Tang, T. Hartzenberg, S. Richards. 2005.