Describe What Is Economic Welfare In Economics? (Essay Sample)

ECONOMIC WELFARE
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Gross domestic product (GDP) is the monetary value of all finished goods and serviced produced within the borders of a country in a certain time frame, it can annual, semi-annual or quarterly. GDP is used to measure the total amount of output and income in a country in a country for a specific time period (Teitelbaum, 2015,p. 3). GDP is used by economists to measure the economic welfare and relative wealth and prosperity in nations in the world. GDP is also used to measure the growth or decline of the economy in a country. There are various ways to measure the gross domestic product but the most conventional way is to use the expenditure approach (Frugoli et al,. 2015). Gross domestic product is composed of household consumption plus government consumption and expenditure in investments and domestic investments by households plus gross exports minus the gross imports of goods and services. The equation for calculating the GDP is GDP=C+G+I+X-M (Alkire et al,. 2015). The letter C denotes the household expenditure on consumption, G denotes the government consumption and expenditure in investments, I denote the amount of investments which are private and domestic, X denotes the total exports in a country and M denotes the total imports in a country(goods and services) (Frugoli et al,. 2015). Total domestic consumption is the amount of money spent by household’s final goods and services which are produced domestically. Final goods can be defined as goods which cannot be resold or used as factors of production within the next financial year; examples of such goods are milk for consumption and clothes such as a tie (Alkire et al,. 2015). Final goods are consumed by households and cannot be used in production and such goods are factored during measurement of the GDP of a nation’s economy.
The second component constituting the GDP which is total domestic investment expenditure is a measurement including investments in bonds and the stocks in the stock market, investment in other equipment such as a bulldozer, commercial buildings and residential apartments that will be in use for a long time period (Frugoli et al,. 2015). This component also include final goods waiting to be sold, goods which are held by companies. Government expenditures, on the other hand, includes the amount of funds used by the government to fund all its projects and arms, for example, the military and construction of infrastructure, however, this amount does not include expenditure on welfare programs (Alkire et al,. 2015). The net exports is a component of the GDP equation which constitute total locally produced goods and services exported minus the total amount of foreign manufactured goods and services imported and consumed locally (Alkire et al,. 2015). The components of the gross domestic equation which have been discussed above justify that gross domestic product is used to measure the social and economic welfare of a country because it encompasses all the important aspects of an economy. One merit of using the GDP to measure the economic welfare of a nation is that GDP is displays the purchasing power a nation posses over a given time period. The buying power dictates the strength of an economy and the level of the economic and social welfare of the people in a particular economy (Alkire et al,. 2015). The higher the buying power, the better the social welfare of a country which suggests there is economic growth and development in such a nation. Thus, the gross domestic product is a clear indicator of the economic welfare of a nation.
The gross domestic product provides an exceptionally good analysis of the economic activities in an economy which are visible through the changes and growth rates of the GDP in a country’s economy. The GDP captures information from the integral sectors of the economy which is household consumption, government expenditure, domestic investments and net exports (Alkire et al,. 2015). The GDP thus determines the strength and shortcoming of the above mentioned integral sectors and therefore it is a very effective measure of the economic welfare of a nation. Another merit of the gross domestic product is that it is very useful for policy makers in the process of adjusting and implementing economic policies for growth and development...