GDP AND WELFARE:-

Introduction: GDP and Welfare

Gross Domestic Product (GDP) is one of the most commonly used indicators to measure the
economic performance of a country. It represents the total monetary value of all final goods
and services produced within a country's geographical boundaries during a specific period,
usually a year. GDP helps economists, policymakers, and governments assess the health and
size of an economy. A rising GDP is often associated with economic growth, increased
employment opportunities, and improved standards of living.

However, while GDP is a powerful tool to quantify economic activity, it does not necessarily
reflect the true well-being or welfare of a nation's citizens. Welfare refers to the overall
quality of life and happiness of individuals in a society, encompassing not just material
wealth, but also factors such as health, education, environment, social justice, and freedom.
Therefore, the relationship between GDP and welfare is complex. An increase in GDP may
not always lead to a corresponding improvement in welfare, especially if growth is
accompanied by rising inequality, environmental degradation, or social unrest.

This essay explores the concept of GDP, its importance, limitations, and its connection with
the broader idea of human welfare. By examining both economic and non-economic aspects
of development, we aim to understand how effective GDP is as a measure of progress and
what alternative or complementary indicators might provide a fuller picture of societal well-
being.

What Is Gross Domestic Product (GDP)?

Gross Domestic Product (GDP) includes consumer spending, government spending, net
exports, and total investments. It functions as a comprehensive scorecard of a country’s
economic health. GDP may be adjusted for inflation and population to provide deeper
insights. Real GDP accounts for inflation, Nominal GDP does not.
Understanding Gross Domestic Product (GDP)

The calculation of a country’s GDP encompasses all private and public consumption,
government outlays, investments, additions to private inventories, paid-in construction costs,
and the foreign balance of trade. Exports are added to the value, and imports are subtracted.

Of all the components that make up a country’s GDP, the foreign balance of trade is
especially important. The GDP of a country tends to increase when the total value of goods
and services that domestic producers sell to foreign countries exceeds the total value of
foreign goods and services that domestic consumers buy. When this situation occurs, a
country is said to have a trade surplus.

If the opposite situation occurs—that is, if the amount that domestic consumers spend on
foreign products is greater than the total sum of what domestic producers can sell to foreign
consumers—it is called a trade deficit. In this situation, the GDP of a country tends to
decrease.

GDP can be computed on a nominal basis or a real basis, the latter accounting for inflation.
Overall, real GDP is a better method for expressing long-term national economic
performance since it uses constant dollars.2

Let’s say one country had a nominal GDP of $100 billion in 2014. By 2024, its nominal
GDP grew to $150 billion. Prices also rose by 100% over the same period. In this example,
if you look solely at its nominal GDP, the country’s economy appears to be performing well.

However, the real GDP (expressed in 2014 dollars) would only be $75 billion, revealing that
an overall decline in real economic performance actually occurred during this time.

What Does GDP Tell You?

A country’s GDP represents the final market value of all the products and services that a
country produces in a single year. Another way to measure GDP is as the sum of four
factors: consumer spending, government spending, net exports, and total investment.

In the United States, GDP is calculated every three months by the Bureau of Economic
Analysis (BEA). The BEA makes its estimate based on price estimates, survey data, and
other information collected by other agencies, such as the Census Bureau, Federal Reserve,
Department of the Treasury, and Bureau of Labor Statistics.

U.S. Bureau of Economic Analysis. “BEA in Brief: The Making of GDP

Types of GDP
GDP can be reported in several ways, each of which provides slightly different information.

Nominal GDP
Nominal GDP is an assessment of economic production in an economy that includes current
prices in its calculation. In other words, it doesn’t strip out inflation or the pace of rising
prices, which can inflate the growth figure.

All goods and services counted in nominal GDP are valued at the prices at which those
goods and services are sold for in that year. Nominal GDP is evaluated in either the local
currency or U.S. dollars at currency market exchange rates to compare countries’ GDPs in
purely financial terms.

Nominal GDP is used when comparing different quarters of output within the same year.
When comparing the GDP of two or more years, real GDP is used. This is because, in effect,
the removal of the influence of inflation allows the comparison of the different years to
focus solely on volume.

Real GDP
Real GDP is an inflation-adjusted measure that reflects the number of goods and services
produced by an economy in a given year, with prices held constant from year to year to
separate out the impact of inflation or deflation from the trend in output over time. Since
GDP is based on the monetary value of goods and services, it is subject to inflation.

Rising prices tend to increase a country’s GDP, but this does not necessarily reflect any
change in the quantity or quality of goods and services produced. Thus, by looking just at an
economy’s nominal GDP, it can be difficult to tell whether the figure has risen because of a
real expansion in production or simply because prices rose.

Economists use a process that adjusts for inflation to arrive at an economy’s real GDP. By
adjusting the output in any given year for the price levels that prevailed in a reference year,
called the base year, economists can adjust for inflation’s impact. This way, it is possible to
compare a country’s GDP from one year to another and see if there is any real growth.

Real GDP is calculated using a GDP price deflator, which is the difference in prices between
the current year and the base year. For example, if prices rose by 5% since the base year,
then the deflator would be 1.05. Nominal GDP is divided by this deflator, yielding real
GDP. Nominal GDP is usually higher than real GDP because inflation is typically a positive
number.

Real GDP accounts for changes in market value and thus narrows the difference between
output figures from year to year. If there is a large discrepancy between a nation’s real GDP
and nominal GDP, this may be an indicator of significant inflation or deflation in its
economy.

GDP Per Capita

GDP per capita is a measurement of the GDP per person in a country’s population. It
indicates that the amount of output or income per person in an economy can indicate average
productivity or average living standards. GDP per capita can be stated in nominal, real
(inflation-adjusted), or purchasing power parity (PPP) terms.

At a basic interpretation, per-capita GDP shows how much economic production value can
be attributed to each citizen. This also translates to a measure of overall national wealth
since GDP market value per person also readily serves as a prosperity measure.

Per-capita GDP is often analyzed alongside more traditional measures of GDP. Economists
use this metric for insight into their own country’s domestic productivity and the
productivity of other countries. Per-capita GDP considers both a country’s GDP and its
population. Therefore, it can be important to understand how each factor contributes to the
overall result and affects per-capita GDP growth.

If a country’s per-capita GDP is growing with a stable population level, for example, it
could be the result of technological progress that is producing more with the same
population level. Some countries may have a high per-capita GDP but a small population,
which usually means they have built up a self-sufficient economy based on an abundance of
special resources.

GDP Growth Rate

The GDP growth rate compares the year-over-year (or quarterly) change in a country’s
economic output to measure how fast an economy is growing. Usually expressed as a
percentage rate, this measure is popular for economic policymakers because GDP growth is
thought to be closely connected to key policy targets such as inflation and unemployment
rates.

If GDP growth rates accelerate, it may be a signal that the economy is overheating, and the
central bank may seek to raise interest rates. Conversely, central banks see a shrinking (or
negative) GDP growth rate (i.e., a recession) as a signal that rates should be lowered and that
stimulus may be necessary.

GDP Purchasing Power Parity (PPP)

While not directly a measure of GDP, economists look at PPP to see how one country’s
GDP measures up in international dollars using a method that adjusts for differences in local
prices and costs of living to make cross-country comparisons of real output, real income, and
living standards.

GDP Formula

GDP can be determined via three primary methods. All three methods should yield the same
figure when correctly calculated. These three approaches are often termed the expenditure
approach, the output (or production) approach, and the income approach.

The Expenditure Approach

The expenditure approach, also known as the spending approach, calculates spending by the
different groups that participate in the economy. The U.S. GDP is primarily measured based
on the expenditure approach. This approach can be calculated using the following formula:

GDP=C+G+I+NX

where:C=Consumption

G=Government spending

I=Investment

NX=Net exports

GDP=C+G+I+NX
where:C=Consumption

G=Government spending

I=InvestmentNX=Net exports

Change in Real Gross Domestic Product (GDP) for the US

GDP is an important economic indicator used in fundamental analysis.

BEA's estimates of U.S. GDP are based on national income and product accounts (NIPAs)
for sectors including businesses, households, Non profit organizations, and governments.
NIPAs are compiled from seven summary accounts tracing receipts and outlays for each of
those sectors. Detailed NIPA data also forms the basis for BEA GDP reports by State and
industry.

GDP for Economists and Investors

GDP is an important measurement for economists and investors because it tracks changes in
the size of the entire economy. In addition to serving as a comprehensive measure of
economic health, GDP reports provide insights into the factors driving economic growth or
holding it back.

Economic health, as measured by changes in the GDP, matters a lot for the prices of
financial assets. Because stronger economic growth tends to translate into higher corporate
profits and investor risk appetite, it is positively correlated with share prices. Conversely,
stronger GDP growth can hurt fixed-income investments, like bonds, by making their returns
less attractive on a relative basis.
While GDP reports provide a comprehensive estimate of economic health, they are not a
leading economic indicator but rather a look in the economy's rear-view mirror. Markets
track GDP reports in the context of those that preceded them, as well as other more time-
sensitive indicators relative to consensus expectations.

What Is Real and Nominal GDP?

Real and nominal GDP are two different ways to measure the gross domestic product of a
nation. Nominal GDP measures gross domestic product in current dollars; unadjusted for
inflation. Real GDP sets a fixed currency value, thereby removing any distortion caused by
inflation or deflation. Real GDP provides the most accurate representation of how a nation's
economy is either contracting or expanding.

How Is Real GDP Calculated?

Real GDP is calculated by using a price deflator. A price deflator is the difference between
prices in the current year that GDP is being measured and some other fixed base year. For
example, if prices rose by 8% from the base year, the price deflator would be 1.08. The
nominal GDP would then be divided by this deflator to reach real GDP.

What Is the Real GDP?

The real GDP of the U.S. as of the third quarter of 2024 increased by 3.1% on an annualized
basis. That's compared to an increase of 3.0% in the second quarter of 2024.

What Is the Nomainal GDP?

Nominal GDP is a measure of the total value of all final goods and services produced within
a country during a specific period, calculated at current market prices. It doesn't account for
inflation or deflation, so it reflects the economic output at prevailing prices.
What Is Welfare?

Welfare is a common label attached to a range of government programs that assist

individuals and families whose income falls below the poverty line. The programs provide
health care, food subsidies, housing assistance, and child care assistance to those in need.

The benefits vary by state. Most are funded by the federal government, which distributes
money to the states through a program called Temporary Assistance for Needy Families
(TARF).

Welfare, broadly, encompasses the well-being of individuals and society, including

protection against various risks and provision of resources for basic needs. Subtopics within
welfare can be categorized into different areas of concern, including social security,
protection of vulnerable groups, economic stability, and promoting social justice.

What is the social Welfare System welfare?

A social welfare system is a structure that provides assistance to individuals and families in
need, encompassing programs designed to ensure basic needs like food, shelter, education,
and healthcare are met. It aims to protect citizens from economic risks and insecurities,
providing support for various needs

What is the purpose of welfare?

The purpose of welfare is to help people in financial need. The programs offer assistance with
basic human needs: health care, shelter, and food.
What is social welfare and its examples?

Social welfare consists of various local, state, and government programs designed to assist people
with food, housing, and medical care. Some examples are Medicaid, disability income, low-
income housing, and the SNAP program.

What are the 6 major welfare programs?

The six major welfare programs are Temporary Assistance for Needy Families (TANF), the
Supplemental Nutrition Assistance Program (SNAP), Supplemental Security Income (SSI),
Medicaid, housing assistance, and the Earned Income Tax Credit (EIC). These programs provide
income, food, and housing assistance for people in need of help.

Why is social welfare important?

Social welfare is important for communities and people to survive. Often, the cycle of poverty is
broken due to social welfare assistance programs. People have access to food, shelter, and medical
care that they could not otherwise afford.

Who Qualifies

Benefits vary by state, with eligibility based on the person’s financial status, family size,
income, or an assessed disability.1 A caseworker may be assigned to determine and confirm
the applicant's needs.

Qualification is based on the poverty line for each state and allows for adjustments based on
the local cost of living. The government requires that individuals or families seeking
assistance prove that their annual income falls below the federal poverty level (FPL).

As of 2025, the federal government has established the minimum poverty level at below
$21,150 for a family of two, with higher rates up to four times that amount for some states.

Subsidized programs are only available to U.S. citizens and permanent residents. Federal law
bans states from using grants to assist most legal immigrants unless they've resided in the
country for five years or more. A valid Social Security Number (SSN) is required to obtain
benefits. Individuals applying for welfare must meet their states' requirements as well as rules
imposed by the federal government.
History of Welfare

The history of welfare programs in the United States is complex and controversial. In the
1960s, President Lyndon Johnson created anti-poverty programs including Head Start, food
stamps, and Medicare. These programs were designed to fight what he called "the war on
poverty" in America.

Former President Richard Nixon revised the program in 1969 with the Family Assistance
Plan in 1969, which imposed work requirements and work incentives for beneficiaries.

In the 1980s, President Ronald Reagan cut welfare budget programs designed to help
families and created "welfare to work" programs in 40 states.

Further legislation under President Bill Clinton in 1996 focused on limiting the length of
time that people could receive benefits.

Then-President Joe Biden brought back no-strings-attached assistance to families with

children in 2021, but only as a temporary measure while the COVID-19 pandemic was
raging. Eligibility extended to families with incomes well above the poverty line but was
phased out at higher levels.

Current Status of Welfare

The U.S. government currently assists people living below the poverty line mainly through a
program known as Temporary Assistance to Needy Families (TANF).

The program mandates that all recipients find employment within two years or risk losing
their benefits.

As of 2025, the federal government was expected to funnel about $16.7 billion to the states
to pay for TANF assistance to their residents.

Types of Programs

In addition to TANF, the government has several programs that subsidize costs for low-
income Americans. Income eligibility levels vary by program.

 Medicaid: Medicaid is a health insurance plan for those whose income falls below
federal poverty standards. Pregnant women, children, people with disabilities, and
aging adults who fall below certain income thresholds are guaranteed coverage under
Medicaid. Medicaid enrollment increased under the Affordable Care Act (ACA).
 SSI: Supplemental Security Income (SSI) is administered by the Social Security
Administration (SSA). It provides public assistance to children and adults with
disabilities including blindness, neurological challenges, respiratory disease, and
failure to thrive.
 SNAP: Administered by the states, the Supplemental Nutrition Assistance
Program (SNAP), formerly known as the Food Stamp Program, provides payments
to low-income households to buy food. The Special Supplemental Food Program
for Women, Infants, and Children (WIC) and the Child Nutrition Program serve
children. The Child Nutrition Program is an umbrella for the National School Lunch
Program, the School Breakfast Program, and the Summer Food Service Program.
 CHIP: The Child’s Health Insurance Program is administered by the U.S.
Department of Health and Human Services (HHS). It provides low-cost health care
to children in households that don't qualify for Medicaid. This program covers
 benefits for children including dental care. Special needs assistance such as physical
and occupational therapy provide a safety net for children in low-income homes.
 Housing Assistance: The housing choice voucher program helps families below
federal poverty standards, people with disabilities, and aging adults access affordable
and livable rental homes in safe neighborhoods. Vouchers are distributed by local
public housing agencies that receive funding from the federally-run U.S. Department
of Housing and Urban Development(HUD) office. Families or individuals pay the
difference between the market price of the rent and the amount subsidized by the
voucher program.
 EITC: The Earned Income Tax Credit (ETC) is a tax break for low to moderate-
income individuals and families. For qualifying taxpayers with three or more
qualifying children, the tax year 2025 maximum Earned Income Tax Credit amount
is $8,046, an increase from $7,830 for the tax year 2024.

What Is Considered Welfare?

Welfare is a term that dates from the 1960s for government-funded assistance to low-income
Americans, in the form of weekly direct payments that could be used for any purpose. The
word welfare has been largely banished from government documents.

Today, a number of federal programs provide subsidies for housing, food, and healthcare to
individuals and families whose income falls below the federal-established poverty line.

The term welfare was particularly associated with long-term payments with no strings
attached to unemployed people. Since 1996, eligibility for such payments is mostly limited
to two years or less for able-bodied recipients.

What Is the Difference Between Welfare and Entitlements?

Entitlements are federally funded programs that benefit Americans who qualify for them.
These are not tied to income but to age, work history, and contributions from payroll
deductions during their working years.

Entitlements include Social Security benefits for retirees and Medicare coverage for the
elderly, which are partially funded by the recipients through payroll deductions.

The term welfare is now rarely used. It became a loaded term in politics as early as the
1960s and was often characterized as free money for the underdeserving.

What Welfare Programs Does the United States Provide?

U.S. programs that might be termed welfare include Medicaid, Supplemental Security
Income, Supplemental Nutrition Assistance Program, the Children's Health Insurance
Program, Temporary Assistance for Needy Families, housing assistance, and the Earned
Income Tax Credit.

All are programs available only to people and families whose income falls below certain
levels.

DIFFERENCE BETWEEN GDF AND WELFARE

WILL BE IN WRITTEN FORM

Conclusion: GDP and Welfare

In conclusion, while Gross Domestic Product (GDP) is a vital indicator of a country's

economic performance, it does not provide a complete picture of the well-being of its
citizens. GDP focuses mainly on the quantity of economic output, whereas welfare
encompasses the overall quality of life, including health, education, environmental
sustainability, and social equity. A rise in GDP may indicate economic growth, but it does not
always guarantee an improvement in people’s standard of living.

Therefore, policymakers and economists must be cautious while using GDP as the sole
measure of progress. To ensure true development, it is essential to complement GDP with
other indicators that reflect human welfare and sustainable growth. Only then can a country
achieve balanced progress that not only boosts economic output but also enhances the lives of
its people in meaningful and lasting ways.