(Tiểu luận) topic is gdp a perfect base indicator formeasuring well being

NATIONAL ECONOMICS UNIVERSITY Faculty of Mathematical Economics -*** - ASSIGNMENT MACROECONOMICS Topic: Is GDP a perfect base indicator for measuring well-being? Full name: Nguyen Ngoc Quynh Student’s ID: 11225542 Class: Actuary 64 Ha Noi, October 2023 TABLE OF CONTENTS INTRODUCTION .1 I THEORY Definition 2 The components of GDP .2 2.1 Consumption 2.2 Investment 2.3 Government Purchases 2.4 Net exports 3 GDP approaches 3.1 Approach 1: GDP by Expenditures 3.2 Approach 2: GDP by sources of incomes .4 3.3 Approach 3: GDP by production processes – Added Values Measurement 4.1 Nominal GDP .5 4.2 Real GDP 5 GDP and economic welfare II GDP DATA IN VIETNAM Overall GDP in Vietnam .7 Inadequacies in the GDP index 2.1 Environment 2.2 Income distribution .9 CONCLUSION 10 REFERENCES 11 INTRODUCTION Economic development is considered a big race for countries in the current era of modern technology 4.0 The economic development goals of each country may be different, but most aim to create wealth and sustainable economic development, bring many job opportunities, improve the quality of life for people, and reduce poverty, thereby enhancing the competitiveness of countries around the world After 30 years of economic reform (1986-2016), Vietnam has developed steadily, from a poor country to becoming the world's leading exporter of agricultural and fishery products, entering the middle-income threshold and integrating more deeply with the world economy In the period 2000 - 2022, Vietnam's GDP per capita increased from 173rd to 117th, jumping 56 places in the world GDP per capita ranking Along with that, Vietnam's GDP per capita has increased more than times, reaching more than 4,100 USD Thanks to a solid foundation, Vietnam's economy has shown outstanding resilience after the crisis period, especially the period after the COVID-19 pandemic So what is GDP? How does GDP affect the economic development of each country? The goal of the article below is to clarify the basic concepts of GDP as well as GDP data in Vietnam At the same time, the thesis will provide arguments to answer the question "Is GDP a perfect base indicator for measuring well-being?" I THEORY Definition Gross Domestic Product (GDP) is the market value of all final goods and services produced within a country in a given period of time The components of GDP The GDP is made up of four major parts: consumption of goods and services, investment, government purchases, and net exports The total of these components must be equal to GDP Figure 1: Components of GDP 2.1 Consumption Consumption refers to private consumption expenditures or consumer spending on goods and services Consumption refers to personal consumption expenditure or consumer spending on goods and services Goods include durable goods, such as furniture and electronic devices, and nondurable goods, such as food and cosmetics Services include items such as entertainment, tourism, and medical care Mostly in the GDP distribution of all countries, consumer spending is the largest component of GDP Therefore, consumer confidence has a great influence on economic growth High levels of confidence indicate a consumer's willingness to spend, while low levels of confidence reflect uncertainty about the future and unwillingness to spend 2.2 Investment Investment is the purchase of goods that will be used in the future to produce more goods and services, called capital goods Investment is the total amount spent on capital equipment, inventories, and structures It also includes household purchases of new housing because, by convention, the purchase of a new home is a type of household expenditure that is classified as investment rather than consumption 2.3 Government Purchases Government purchases are spending on goods and services by federal, state, and local governments It ranges from expenditure on public works to paying the salaries of government employees However, not all government spending is called government purchases For example, Social Security benefits or Subsidy for the elderly, the unemployed, the homeless, etc These are called transfer payments 2.4 Net exports Net exports are a measure of a nation's total trade It equals the foreign purchases of domestically produced goods (exports) minus the domestic purchases of foreign goods (imports) The formula for net exports is a simple one: Net Exports = Value of total exports - Value of total imports A nation with positive net exports is said to have a trade surplus, conversely, a nation with negative net exports is said to have a trade deficit Thus, a country's net exports comprise a portion of its entire trade balance 3 GDP approaches There are three approaches to GDP: 3.1 Approach 1: GDP by Expenditures From a spending perspective, GDP includes four components: consumption, government purchases, investment, and net export GDP = C + I + G + NX Where:  C – Consumption: spending by households on goods and services  I – Investment: spending on capital equipment, inventories, and structures  G – Government Purchases: spending on public goods and services  NX = X – IM: Net exports spending on domestically produced goods and services by foreigners (exports) minus spending on foreign-produced goods and services by domestic residents (imports) 3.2 Approach 2: GDP by sources of incomes The income approach sums up the incomes generated by production For example, the compensation employees receive and the operating surplus of companies (roughly sales less costs) GDP = w + i + r +Pr + OI + Te Where:  w – Wage  i – Interest  r – Rental  Pr – Profits  OI – Owners’ Income  Te – Exile Tax: Taxes on services, marketed goods, and government subsidies for production 3.3 Approach 3: GDP by production processes – Added Values Document continues below Discover more from: Macroeconomics Đại học Kinh tế Quốc… 543 documents Go to course Ơn tậpPremium mơn Kinh tế Vĩ mô 11 trường đại học Kinh tế… Macroeconomics 100% (12) Premiumvi mo - de thi Trac nghiem 16 kinh te vi mo Macroeconomics 100% (11) Premiumvi mo chuong Trac nghiem Macroeconomics 100% (6) Premium Chuong 27 17 Macroeconomics 100% (6) Premium Macroeconomics Lecture Note Macroeconomics 100% (6) Premium Đề thi kinh tế vĩ mô FTU Macroeconomics The production of value-added approach sums up the gross value added of all industries For each industry, this involves first determining its output and then subtracting the goods and services used to generate that output GDP = ∑VAi Where: VA = Total revenue – Cost for intermediate goods Measurement As previously stated, a country's GDP includes all private and public consumption, government purchases, investment, and foreign trade balance More specifically, GDP calculations can be made on a nominal or real basis, with the latter accounting for inflation 4.1 Nominal GDP Nominal GDP is GDP calculated at current market prices In other words, nominal GDP does not remove inflation or price increases, all goods and services included in nominal GDP are valued at the market price at which they were sold in that year of calculation The Nominal GDP is calculated as follows: GDPtn = ∑ Qit Pit Because nominal GDP is measured at current prices, growth in nominal GDP from one year to the next may reflect increases in the price level, but not growth in the quantity of goods and services service is produced For example, if all prices increase (inflation), nominal GDP will become larger, but this does not mean there will be production growth 4.2 Real GDP Real GDP is an inflation-adjusted measurement that reflects the value of all goods and services produced by an economy in a given year, with prices held constant from year to year to separate the impact of inflation or deflation from the overall trend in output 100% (6) The Real GDP is calculated as follows: GDPtr = ∑ Qit Pi0 Instead of changing price levels from year to year like nominal GDP, real GDP uses a fixed price level in the base year, so it reflects the change in actual production levels over the years Thus, GDP provides a more reliable indicator of economic growth and a more solid foundation for evaluating the long-term performance of the national economy GDP and economic welfare Welfare is a broad term that includes various government policies and activities aimed at ensuring that the basic needs of the people are met Welfare includes social expenses such as pensions, scholarships for poor students, or subsidies for the unemployed, homeless, etc Economic welfare is the level of prosperity and quality of life in an economy Real GDP and other measures of people's well-being such as the poverty rate, degree of environmental pollution, standard of education, etc., are frequently used to calculate economic welfare An increase in real GDP and real income shows that people will be better off, they enjoy life more, and economic welfare will therefore increase However, economic welfare encompasses more than just income levels; issues like the quality of healthcare services, education, and environmental factors such as pollution and traffic congestion all have an impact on people's living standards These aspects of living quality play a significant role in determining economic well-being But in reality, the GDP index only takes into account the value of goods and services bought and sold in markets and ignores the quality of people's lives II GDP DATA IN VIETNAM Overall GDP in Vietnam As introduced in the introduction, Vietnam's GDP has grown very strongly in the last 20 years During the process of transforming from a backward economy to a modern market economy, Vietnam's economic growth has risen to become a "bright spot" in the region and the world with many remarkable achievements The economy has not only grown in scale but also increased in quality, and the people's living standards have improved significantly According to data from the International Monetary Fund (IMF): In 2022, Vietnam's GDP per capita is estimated to reach about 4,162.94 USD, ranking 117 th in the world and 6th in Southeast Asia Vietnam's GDP growth in the period 2011 - 2022 In the years before the Covid-19 pandemic, Vietnam had witnessed significant economic and social developments Vietnam's GDP growth increased from 2015 to 2019 and exceeded the 7% mark for the first time in many years in 2018 and 2019, making it one of the world's fastest-rising economies In 2019, GDP reached approximately 262 billion USD, a rise of 18 times over the first year of innovation (1986), average income per capita reached approximately 2,800 USD/person, and so on Because the COVID-19 pandemic appeared in 2020 and broke out in 2021, the world economy in general and Vietnam in particular were heavily affected, but Vietnam's GDP still achieved growth of nearly 3%, one of the rare countries that have positive growth in the region and the world Overcoming many difficulties and challenges, especially the COVID-19 pandemic, the economy in 2022 has grown strongly with a growth rate of up to 8.02%, reaching the highest increase in the period 2011 - 2022 due to the economy recovering again In particular, growth was achieved in all three industry groups: agriculture, forestry, and fisheries increased by 3.36%; industry and construction increased by 7.78%; services increased by 9.99% The importexport market has seen many improvements: total import and export turnover of goods in 2022 is estimated to reach 732.5 billion USD, up 9.5% compared to the previous year Besides, other sectors of the economy also show many positive signs Inadequacies in the GDP index 2.1 Environment One of the major concerns that GDP does not take into account is environmental degradation We cannot deny that economic growth, especially through the development of an industrial economy, will cause huge environmental consequences Currently, manufacturing plants are one of the main factors causing environmental pollution, increasing the risk of depleting natural resources as well as deteriorating air and water quality, etc A pretty clear illustration that we can see is the case in 2016, where the Formosa steel factory discharged waste into the sea, causing mass fish deaths along the coast of four provinces: Ha Tinh, Quang Binh, Quang Tri, and Thua Thien Hue This incident caused heavy economic, social, and environmental damage, of which the fisheries industry was most affected, followed by business, services, tourism, and the daily life of fishermen Another example is blocking the flow of a river to build a hydroelectric dam Although this activity can increase GDP, it also destroys the aquatic environment around that river Moreover, hydroelectric plants releasing floods upstream cause heavy economic damage and directly affect people's lives But in reality, the GDP index only records the number of kilowatts of electricity generated by hydroelectric projects and the growth in the electricity industry, completely ignoring the environmental and people's problems 2.2 Income distribution Besides environmental problems, GDP also does not mention the issue of income distribution among groups of people in society Today, along with the trend of industrialization and modernization, the urbanization process is also taking place strongly, contributing to increasing GDP and creating momentum for economic development At the same time, urban areas and industrial parks are springing up in the suburbs, gradually shrinking the agricultural production area, and many lands are planned and cleared Farmers who sold land became rich and quickly lost that wealth because they did not have arable land, and moreover, they were not qualified to work in industrial zones This creates an even larger income gap between high-income groups and low-income groups, making the rich-poor divide happen faster So, in fact, annual GDP is still increasing, but along with that, the gap between rich and poor is also increasing: the rich are getting richer and the poor are getting poorer This will lead to inequality in access to urban services such as housing, employment, education, healthcare, etc, and more seriously, conflicts between social classes appear CONCLUSION Since World War II, most countries around the world have come to use GDP as the core metric for prosperity Until now, GDP is still the most important indicator among many statistical and economic indicators that governments choose to evaluate and compare the growth of countries around the world And in the future, promoting GDP growth is still the top goal of all countries aiming to build a developed, sustainable economy Economic development must go hand in hand with the happiness of the people for the economy to be considered sustainable development But with all the characteristics and inadequacies of GDP as analyzed above, we must admit that the GDP index is designed to measure production capacity and economic growth instead of assessing the welfare or happiness of the people Therefore, it can be concluded that: GDP is not a perfect base indicator for measuring well-being In truth, “GDP measures everything,” as Senator Robert Kennedy famously said, “except that which makes life worthwhile.” 10 REFERENCES N Gregory Mankiw (2013) Principle of economics Cengage Learning Pettinger, T (2017, November 7) Economic Welfare - Economics Help Economics Help https://www.economicshelp.org/blog/1041/economics/economic-welfare/ ĐỊNH, S K H V Đ T B (2023, February 28) Tốc độ tăng trưởng GDP Việt Nam giai đoạn 2021-2030 phấn đấu đạt khoảng 7,0%/năm SỞ KẾ HOẠCH ĐẦU TƯ BÌNH ĐỊNH https://skhdt.binhdinh.gov.vn/vi/news/quy-hoach-ke-hoach/toc-do-tangtruong-gdp-cua-viet-nam-giai-doan-2021-2030-phan-dau-dat-khoang-7-0nam-552.html (2023) Tapchicongsan.org.vn https://www.tapchicongsan.org.vn/web/guest/kinh-te/-/2018/827154/kinh-teviet-nam-nam-2022-va-trien-vong-nam-2023.aspx#:~:text=GDP%20n %C4%83m%202022%20t%C4%83ng%208 Stiglitz, J E (2020, August 1) GDP Is the Wrong Tool for Measuring What Matters Scientific American https://www.scientificamerican.com/article/gdp-is-the-wrong-tool-formeasuring-what-matters/  11