Financialaccounting is an important aspect of measuring economic development.It enables economist and policy makers to evaluate accurately howmuch is going in and coming out of any financial activity. Typically,financial accounting is carried out by firms and governmentdepartments to gauge their inputs and outputs. However, it is notpossible to quantify everything numerically. This scenario creates achallenge that needs to be addressed to enable comprehensivemeasurement of development at all levels. As a result, new methodsare devised to facilitate the measurement of development. This filmlooks at how economic development can be measured by using thehousehold as a reflection of what happens at the regional or nationallevels.
Thelesson mainly deals with the measurement of development. The speakertalks about the importance of being able to quantify development togauge its impact on human life. He outlines the various tools thatcan be used in the measurement of development at the household andnational levels and expounds each of them. He explains how financialaccounting can be measured from the individual household level andthen the findings extrapolated to the regional and national levelsfor purposes of economic development evaluation in developingcountries. Thetopic focuses on the measurement or quantification of development. Inthe field of economics and finance, being able to measure todevelopment is important in evaluating the impacts of economicdevelopment at individual, family and national level. For a buddingeconomist like me, measurement of development is paramount. Throughthis measurement, it becomes possible to evaluate how well certaineconomic development projects are performing by looking at theirinputs and outputs. Therefore, the topic discussed in the film givesme valuable knowledge on how wealth is created, how it changes overtime and how to monitor these changes.
Ilearned that measurement of development was not a new concept. It hasbeen around for ages judging by the examples given in the lecture.For instance, the speaker gives the example of Bill Gates and themeasurement of the output of engines. He says that by measuring theoutput of engines, it was possible to make more efficient engines.The new engines gave more output than the previous one while usingway less fuel than those that were used in machines before them. Theother thing I learned is the by measuring development at thehousehold level it is possible to measure development at theregional and national levels. Using different tools of measurementsuch as financial accounts at the household or corporate level givesdata that can be used to evaluate development on a larger scale. Inthis aspect, the importance of financial accounting at the individuallevel paves the way and makes measuring development on a largerscope.
Ialso learned that it is achievable to give everything in a householdall aspects of financial accounting. For instance, the speaker givesan example of a cow under the livestock section of the farminventory. The cow is in this context an asset. When it grows andappreciates in value, it gives the owner a capital gain. If the cowdies prematurely for any reason, the owner gets a capital loss. Thecow delivering milk is a revenue stream of the cow as an asset.Lastly, I learned that the household is directly linked to corporatefinancial stream. In this context, the household has the samefinancial aspects as a firm. These include the assets, debts, wealth,consumption, gifts and the household budget. This expands the scopeof financial accounting from just the household level to the nationallevel. Personally, the film is eye opening. The message passed by thespeaker opens the mind of the viewer to the wide scope of financialaccounting. Typically, coming up with a comprehensive financialanalysis of a household is not an easy task given that most of theassets and liabilities of the farm cannot be measured numerically.However, the approach discussed in the film teaches me how I can goabout performing this task which is a very vital lesson.
Inconclusion, measurement of development is an essential component forboth households and firms. However, at the household level, it is notpossible to give all inputs and outputs a numeric value. This uniquesituation calls for more advanced measures of financial accountingthan the conventional methods. This film explores the use of ahousehold accounting as a step to measuring regional and nationalfinancial accounting. Gauging the use of inputs by households and theoutputs they get is an involving task that covers many aspects of thehousehold including farm inputs and livestock. This method offinancial accounting makes it possible to quantify all householdgoods and services, enabling one to measure development in thehousehold as a representation of a corporation.
Lecturevideo retrieved fromhttp://ocw.mit.edu/courses/economics/14-772-development-economics-macroeconomics-spring-2013/lecture-videos-and-slides/lecture-5-february-21-2013/