Measuring Welfare and Assessing Sustainability

Question: Discuss about the Measuring Welfare and Assessing Sustainability. Answer: Introduction: Gross Domestic Product is termed as the financial value of all the finished commodities as well as services that are produced within the border of the country in a precise time. Gross Domestic Product is mainly calculated on the yearly basis however; it can be calculated on the quarterly basis as well. GDP is mainly used as an economic indicator of the monetary health of a country as well as a measure of a standard of living of the country. The mode of measuring GDP is mainly consistent from country to country. The productivity of a variety of countries with a degree of correctness is measured with the help of GDP (Bleys, 2012). GDP from any period can be calculated as a percentage comparative to previous years. It is also possible to track GDP for long distance of time that is used to measure economic growth and decline in the economy. GDP is also considered as one of the most important economic indicator of National Accounts that represents total market value of all completed commo dities as well as services that are manufactured in the country. GDP is mainly calculated by using the following formula: GDP = C + I + G + NX, where C denotes all private consumption, G is the total of government spending, I denotes the overall investment of the country and NX denotes total net exports. Net exports are mainly equivalent to the sum of exports less imports. Exports refer to the purchase of commodities and services that are produced in the overseas. On the other hand, imports refers domestic acquire of this foreign products as well as services. Net Exports are mainly a heave on total GDP of a country as a country regularly imports more as compared to its regular exports. The government spending accounts for the overall expenditure that is made by the central government. Government purchases of goods and services are a recompense of government workers and purchases from businesses and overseas. However, in the GDP calculation the payments related to transfer and interest are not included. Investment on the other hand, refers to the sum of investments in the purchases of private housing as well as investment in non-residential structures and durable equipments. Consumption is the total sum of personal consumption expenditures that includes both durable and non-durable goods and services (Yamarone, 2012). Three approaches are used to measure the GDP. The most important approach is termed as the production approach. The reversal of the expenditure approach is the production approach. The total value of the economic output are calculated with the help of this approach. This approach involves the compiling of GDP to add up the production by division of activity. Under this approach, GDP is calculated by summing the value of sales of commodities and regulating for procure of intermediate commodities to produce the goods sold. However, one of the biggest disadvantages of this method is that this approach is not able make a difference between intermediate and final commodities. The calculation scheme for this method is as follows: Total Output intermediary consumption for generating commodities and services = GDP at market prices + tax on commodities and import subsidies on commodities = Total GDP (Fioramonti, 2013). The total GDP is calculated as the sum of gross value additional to the institutional elements that are resident in the financial system as well as taxes on commodities and imports. The production approach looks backwards from the vantage of a state of finished monetary activity. Another approach that is used to measure GDP is the income approach that is calculated by summing up the factor proceeds to the factors of production in the society. The countries such as Australia and the United States mainly use the income approach through trend extrapolation to approximate GDP. The calculation scheme under this method is as follows: Employment income in the form of salaries and social advantages + mixed income acknowledged from self-employment + Overall profit received by firms from monetary activities + taxes on production and import Subsidies on manufacture and import = Total GDP (Fleurbaey Blanchet, 2013). The calculation of GDP by the income approach method is based on sum of income of those institutional elements that is directly involved in the manufacture of commodities and services in a given time. The mostly used approach in order to measure GDP is the expenditure approach. The expenditure approach is mainly used to measure the overall sum of all the commodities that is used to develop a finished manufactured goods for sale. The calculation scheme under this approach is as follows: Consumption expenditure of households + Services provided by non-profit organization serving households + Combined and personal services provided by General Government + Gross formation of capital + changes in inventories = Total expenditure at market prices + Exports of goods and services - Imports of goods and services = Total GDP The calculation of GDP by the expenditure method is based on expenditures that are incurred in a given period by institutional elements that are resident in the financial system. It is not necessary that high rate of real GDP growth is good for a country. A high rate of real GDP views rising crime costs as a positive development. The destruction of forests are also viewed as a good news for GDP. The developed countries like New Zealand and Singapore has lower GDP as compared to countries like China. The GDP only measures the sales and income from economic purchases rather than looking at any moral implication (Aguiar Bils, 2015). References Aguiar, M., Bils, M. (2015). Has consumption inequality mirrored income inequality?.The American Economic Review,105(9), 2725-2756. Fioramonti, L. (2013).Gross domestic problem: The politics behind the world's most powerful number. Zed Books. Yamarone, R. (2012). Gross Domestic Product.The Trader's Guide to Key Economic Indicators, Third Edition, 11-46. Fleurbaey, M., Blanchet, D. (2013).Beyond GDP: Measuring welfare and assessing sustainability. Oxford University Press. Bleys, B. (2012). Beyond GDP: Classifying alternative measures for progress.Social Indicators Research,109(3), 355-376.