1.Since Country A has a higher GDP than Country B then this must mean Essay - 1

1.Since Country A has a higher GDP than Country B then this must mean the residents of Country A are better off in terms of economic welfare. Discuss - Essay Example Therefore, to understand how much the given statement can be justified, we need to understand the strength of GDP as a measure of welfare. For that, first we need to understand what exactly GDP is and what is captured through it. Then we have to consider the concept of welfare and see whether GDP is able to capture it or not. Finally, based on this understanding we shall be able to judge the validity of the statement. So in the following, first GDP shall be introduced as a concept. Then the concept of welfare shall be discussed. Finally GDP and welfare shall be related to examine how strongly GDP may reflect the welfare level of any country. Finally, the discussion will be concluded by commenting upon the validity of the statement based on the understanding developed in the previous sections. GDP or Gross Domestic product is the sum total of the market value of all final goods and services produced within the boundaries of any nation in a given year (McConnell & Brue, 2005). It aims to measure the national income of any economy. Only the market value of final goods and services are included and the market value of all goods used as intermediaries in the process of production are excluded in the measurement of national income to avoid the problem of double counting. Sometimes as an alternative, to avoid the double counting problem, to measure national income, the value added at each stage of production is calculated and added up. However, the objective remains to estimate the national income on an economy as adequately as possible. It is important to note that GDP can be expressed in two forms – nominal GDP and real GDP. Nominal GDP represents the money value of all final goods and services produced within an economy in any given year. Real GDP is the nominal GDP d ivided by the price level. Dividing real GDP by the population of the economy we get per capita real GDP. We shall in