Economics Assignment: GDP vs Economic Well-being, Free Trade and Government Intervention

Running head: ECONOMICS ASSIGNMENT
Economics Assignment
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1ECONOMICS ASSIGNMENT
Answer 1
The thesis statement is if GDP is a good measure of economic wellbeing of a country,
such as, Australia. GDP is the monetary value of the total production of a country, occurred
within the geographical boundaries of the nation, within a given time, say, one financial year
(Decancq and Schokkaert 2016). From the definition of GDP, it is found that GDP measures
only the worth value of the goods and services produced within the boundaries of a country, but
it does not include any measures of economic well being. This is a major criticism of GDP, as it
addresses only in the increase in the total production, and increase in GDP does not necessarily
indicate an increase in quality of life, average years of schooling or life expectancy. Increase in
production may lead to activities that negatively affect the quality of life of the people, such as in
case of pollution. It also does not include any volunteering or unpaid work.
Economic well being is measured best by Human Development Index (HDI), which is
based on life expectancy at birth, GNI per capita and average years of adult education. Thus, it
can be said that economic well being of a nation goes far beyond of GDP. The total value of
production is one of the many factors that indicate level of economic welfare of a country
(Costanza et al. 2014).
GDP of Australia in 2016 was 1.205 trillion USD (World Bank 2018). The value of GDP
is quite low compared to many developed countries in the world. On the other hand, the HDI
score was 0.949, placing the country in the 2nd rank among all the 177 countries of the world.
Australia maintained this position for consecutive three years, from 2014 to 2016 (smh.com.au
2015). This indicates that, Australia has a high quality of life, with higher life span (82.5 years),
20.4 years of expected schooling and 13.2 years of mean schooling, and 42,822 (2011 PPP
USD). Hence, it can be said that, the total production of Australia does not reflect the economic

2ECONOMICS ASSIGNMENT
well being of the country. GDP can be used only to measure economic growth but not as a
measure of economic well being.
Answer 2
The thesis statement is that the economy will always move towards full employment
equilibrium and hence there are no reasons for the government to intervene in the economy.
Classical economist J. B. Say introduced the Law of Markets, in which he stated that supply in
the market always creates a demand for its own. He stated that in the market, there will not be
any overproduction, or unemployment due to excess supply as there is always exchange of
money for buying and selling of produced goods and services (Ahiakpor 2017).
Market is an institution, where exchange of goods and services takes place against
money. In a free market economy, the system takes place on its own and needs no government
regulation for controlling. According to the classical economists, the market forces stabilize
themselves when there is any disturbance in the economy and reaches to the equilibrium position
without any external forces. This phenomenon is termed as ‘Invisible hand’ by Adam Smith in
his 1776 book, ‘The Wealth of Nations’ (Keynes 2016).
In this context, Sowell (2015) states that, when there is additional production in the
economy, sufficient purchasing power is also generated for absorbing the extra supply in the
market. Thus, there is no such situation where there is excess supply in the market and
unemployment in the economy. It is based on the assumption that the economy functions in such
a way that generated income will be spent at a rate that will maintain the full employment in the