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

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 o

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 2

1 Definition 2

2 The components of GDP 2

2.1 Consumption 2

2.2 Investment 3

2.3 Government Purchases 3

2.4 Net exports 3

3 GDP approaches 4

3.1 Approach 1: GDP by Expenditures 4

3.2 Approach 2: GDP by sources of incomes 4

3.3 Approach 3: GDP by production processes – Added Values 5

4 Measurement 5

4.1 Nominal GDP 5

4.2 Real GDP 5

5 GDP and economic welfare 6

II GDP DATA IN VIETNAM 7

1 Overall GDP in Vietnam 7

2 Inadequacies in the GDP index 8

2.1 Environment 8

2.2 Income distribution 9

CONCLUSION 10

REFERENCES 11

2

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 8 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?"

1

I THEORY

1 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

2 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

2

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

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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 +P + OI + T r e

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

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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 = ∑VA i

Where: VA = Total revenue – Cost for intermediate goods

4 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:

GDP t

n = ∑ Q P i i

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

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Macroeconomics

The Real GDP is calculated as follows:

GDP t

r = ∑ Q P i i 0

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

5 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

1 Overall GDP in Vietnam

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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 in the world and 6 inth th

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

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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 import-export market has seen many improvements: total import and import-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

2 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

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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

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