A NATIONS WEALTH and services by households, firms, and the

For some, GDP may be the easiest and most government. We use the formula below in
accessible measure of economic well-being of a computing the GDP using the expenditure
nation that can be associated with the standard approach:
of living of its people. Standard of living as a
social indicator may be attributed to the GDP = C + I + G + (X-M)
country’s social mobility, environment, and even Where :
income and poverty. GDP – Gross Domestic Product
Adam Smith, the father of economics, in 1776, C – Total spending on consumption goods
published a paper titled, “An Inquiry into the and services
Nature and Causes of the Wealth of Nations” or I – Purchase of plants, equipment, buildings,
more simply, “The Wealth of Nations”, that etc.
tackled the foundations of a lot of economic G – Government spending on goods and
concepts such as laissez-faire, minimizing the services
government intervention, free markets, the work (X-M) – Net exports or exports less the
of the invisible hands that guide the supply and imports
demand and creation of wealth not only from
⚫ Consumer Spending – is the peso value that
land but also from assembly lines, and market
households are spending for final goods and
systems and capitalism. This has been the
services in a year, for example, supplies used
foundation of the attempt to understand a
at home, food, restaurant spending, and
nation’s wealth that is relative to the use of
many more.
limited resources.
⚫ Government Spending – includes both
national and local government units’
GROSS DOMESTIC PRODUCT (GDP)
spending to acquire goods and services that
The market is composed of buyers and sellers
are used for public facilities, for example,
who may be the government, firm, or household,
when the government hires private
and the interaction of the two creates income
contractors to build bridges, roads, hospitals,
and expense that may be used to measure the
and the like.
goods and services that flow within the economy
⚫ Net Exports – are just the difference
or the circular flow of national income.
between the finals goods and services
derived from importations and exportations.
It is important to note that the income should
The ideal situation is to have a trade surplus,
always be the same as the expense, although the
if not a trade balance, wherein the value of
case is not true all the time. Every economy
exports exceeds imports, or they are
wants a long-term economic growth; this is an
equal/balanced.
indication of development. There is a need to
know if the economy is growing or contracting,
The other approach is the income approach.
and GDP is able to estimate such.
Here, we summarize the compensation of
employees, net interest, rental income, corporate
⚫ GDP is the peso value of all final goods and
profits, and income of other firms.
services that are produced in one country in
a year.
⚫ Finished goods do not include intermediate GDP = NI + T + D, where NI = W + R + I + (X-
goods. M)
⚫ It is important to note that we include in the
GDP only domestically produced goods and GDP = Total National Income + Sales Taxes +
services. Depreciation + Net Foreign Factor Income
⚫ GDP computations excludes financial
transactions like investments in stocks and Where :
bonds as there is really nothing produced Total national income is the sum of all
here; it is just a capital transfer. wages, rent, interest and profits.
⚫ Non-material and illegal goods are not Sales taxes is the tax imposed on consumers
counted in the determination of the GDP. for the sale of goods and services.
Depreciation is the cost allocated to capital
GROSS NATIONAL PRODUCT (GNP) assets over an estimated useful life.
⚫ Determines the difference between the two. Net foreign factor income is the income that
⚫ Goods that are already included in the GDP citizens make while abroad, less the income
of the previous periods are not included. generated by foreigners in the country.

COMPONENTS OF GROSS DOMESTIC PRODUCT

This section explains the two methods of
calculating the GDP: the expenditure approach USES OF GROSS DOMESTIC PRODUCT
and the income approach. The first one ⚫ We can compare the economic performance
summarizes the total expenses to buy final goods on an annual basis by determining the
 growth rate to help us understand where the DOMAINS OF GNH
economy stands. ⚫ Psychological well-being
⚫ To assess the efficiency and effectiveness of ⚫ Health
government policies, GDP is an indication of ⚫ Education
a positive or negative effect of the policy as ⚫ Time use
an indicator of its success or failure and the ⚫ Cultural diversity and resilience
extent of how the economy is helped or hurt ⚫ Good governance
by this policy. In effect, the government ⚫ Community vitality
learns to refine and repeat the successes, ⚫ Ecological diversity and resilience
and of course, stop the mistakes and identify ⚫ Living diversity
the economic stimulants that impact them.
Of course, this is just a minor indicator of Economically, GNH is founded on the basics that
efficiency and effectiveness that may be happy people live longer and thus will need less
used. public health funding. They can achieve more in
⚫ To compare the GDP with that of other terms of the productivity of goods and services.
countries. A higher GDP growth means a Happy people are more generous, and they are
better quality of life and a higher standard of more likely to conserve natural resources,
living, in general. We determine the thereby promoting sustainability. GNH reflects
superpowers, tigers, rising tigers, etc., the normative values of culture and traditions.
boosting the economic reputation and
enhancing more business transactions with For now, they use it as a tool to identify what
them. aspects to focus on that are considered cause or
causes of unhappiness. For example, they have
OTHER MEASUREMENTS OF A NATION’S recognized that in urban areas, they need to
INCOME/WEALTH focus on insufficient community vitality, culture,
⚫ Gross National Product – this is the sum of and psychological well-being. In rural Bhutan,
all the finished goods and services produced they should focus on living standards and
by the citizens of a country overseas and balanced use of time.
domestically.
⚫ Net National Product – this is the sum of all Not everyone is impressed with the GNH as a
the finished goods and services produced by metric for the nation’s wealth. Some argue that
the citizens of a country overseas and the measurement is relative and that the factors
domestically less depreciation. used are subjective, like in the standard of living
⚫ National Revenue – this is part of the and work-life balance, which is based on
national budget of a country that is perception and self-assessment. They say it is
composed of all revenue sources to be used only academic and proves nothing because of the
in national expenditures. weak evidence that it shows. Still, Bhutan
⚫ Personal Revenue – this is the sum of an admittedly pronounces that happiness is still a
individual’s or citizen’s earnings from salary hope for their country.
wages, and investment during a period of
time.
⚫ Disposable Personal Revenue – this is the
sum of an individual’s or citizen’s earnings
from salary, wages, and investment during a
period of time less current individual taxes.

GROSS NATIONAL HAPPINESS

The Kingdom of Bhutan is known for its
application of a unique metric for the nation’s
wealth and well-being --- The Gross National
Happiness (GNH). It attracted the attention of the
world recently, and in 2012, the United Nations
asked it to develop the guiding principles for
happiness in the world. Bhutan believes that the
GNH is a more important tool to use than GDP.
They believe that happiness is living in harmony
with nature while serving the people, including
economic inputs. There are nine domains, and
out of these are around two or four indicators for
each one, for a total of 33 indicators to measure
the GNH. They have learned from the mistakes of
the western capitalist and pursued development
without compromising the values of the country.