Question

Select a country with a high GDP (real or nominal) and a country with a low GDP ( again with real.or nominal). Contrast what the level of GDP in the countries means for consumers and producers. Based on your findings, is GDP a good measure of economic well-being? Please include a reference. thank you.

Answer 1

Answer -

GDP- Gross domestic product (GDP) is the total monetary or market value of all the finished goods and services produced within a country's borders in a specific time period. As a broad measure of overall domestic production, it functions as a comprehensive scorecard of a given country’s economic health.

U.S. has the highest GDP of $21.43 trillion and South Sudan has the lowest GDP of $275.18 .

Level of GDP means for producers -

Of all the components that make up a country's GDP, the foreign balance of trade is especially important. The GDP of a country tends to increase when the total value of goods and services that domestic producers sell to foreign countries exceeds the total value of foreign goods and services that domestic consumers buy. When this situation occurs, a country is said to have a trade surplus. If the opposite situation occurs–if the amount that domestic consumers spend on foreign products is greater than the total sum of what domestic producers are able to sell to foreign consumers–it is called a trade deficit. In this situation, the GDP of a country tends to decrease.

Level of GDP means for consumers -

The GDP calculation accounts for spending on both exports and imports.

Thus, a country’s GDP is the total of consumer spending (C) plus business investment (I) and government spending (G), plus net exports, which is total exports minus total imports (X – M)

According to my understanding, GDP is not fully accepted as a measuring factor of economic well being-

Reasons why GDP is a good measure of economic well being -

GDP measures both the economy’s total income and the economy’s total expenditure on goods and services. Thus, GDP per person tells us the income and expenditure of the average person in the economy. Because most people would prefer to receive higher income and enjoy higher expenditure, GDP per person seems a natural measure of the economic well-being of the average individual.

Reasons why GDP is not a good measure of economic well being-

GDP is not, however, a perfect measure of well-being. Some things that contribute to a good life are left out of GDP. One is leisure. Suppose, for instance, that everyone in the economy suddenly started working every day of the week, rather than enjoying leisure on weekends. More goods and services would be produced, and GDP would rise. Yet despite the increase in GDP, we should not conclude that everyone would be better off. The loss from reduced leisure would offset the gain from producing and consuming a greater quantity of goods and services.

Another thing that GDP excludes is the quality of the environment. Imagine that the government eliminated all environmental regulations. Firms could then produce goods and services without considering the pollution they create, and GDP might rise. Yet well-being would most likely fall. The deterioration in the quality of air and water would more than offset the gains from greater production.

So , we can conclude that GDP is not the perfect measure of economic well being as it excludes some factors which plays a very vital role in growth of economy.