Question

1. How does our current Real GDP reflect the current state of the economy? (the latest GDP report)
2. What is happening to consumption, investment, government spending, and net exports according to the report?
3. According to the latest data and your own evaluation of the economy, where would you say we are in the business cycle and why?
4. Also, choose one of the other reports in U.S. Economy at a Glance (Links to an external site.) and briefly summarize the data from that report.

Answer 1

Real GDP means an inflation controlling measure that shows the value of goods and services produced by an economy over a period of time. Use of real GDP is to control the rate that an economy acess growth without any of the contorting effects of inflation.

Real GDP = Change in Inflation (base year)/ Inflation each year.

Real GDP and economy

• Real GDP reflects on economy as its total goods and services in a particular year, considering into account and changes in price levels also included.
• Act as an Indicator to the economy( in the business cycle or not).
• compare GDP by year as it takes into account inflation.
• Help to preparing for downturn or taking financial decisions

Business cycle and why?

The business cycle is formed by the supply and demand factors—the growth of the GDP— capital formation capabilities, and expectations about the future. This  is generally separated into four segments- expansion, peak, contraction, and trough.

Latest US GDP report

Real gross domestic product (GDP) dropped 5.0% in the first quarter of 2020, according to the second estimate of the Bureau of Economic Analysis. The change was 0.2 % point lower than the earlier estimate released in April. In the fourth quarter of 2019, real GDP grown 2.1 %.

Personal income rised 10.5 %(monthly rate) in April .Disposable income rised 12.9 % and consumer spending dropped 13.6%.

Net international investment position shows  the dissimilarity between U.S. residents foreign financial assets and liabilities, was –$10.9 TN at the end of the fourth quarter of 2019.

The federal government spent $1.28 TN in 2019. Around 60% was military spending, its State and local government were spended 11%. Although this spending has been rosen a bit since 2017, other sectors of the economy shows a faster growth.

Trade deficit increased $5.8 Bn in April to $71.8 Bn. The services surplus dropped $1.3 billion in April to $22.4 billion.

Present scenario

• U.S. economy got into the contraction phase of the business cycle in last february 2020 due to the COVID-19 pandemic issues.
• Economic growth dropped but isn't negative
• Stock market bull nature changed into bear.
• Unemployment rate upto 13%.

A volatile business cycle is bad for the economic growth. A period of economic expansionn (rapid growth in GDP) leads to inflation with various economic costs. Now US undergo through a contraction phase in economy after 9 years expansion phase ended on January 2020.