Question

Research the latest GDP report for a country in Europe , complete the following:

• List the four components of GDP and explain each
• Describe what is measured in each of those components
• Describe the relative size of each of the components (in absolute dollars and as a percentage of GDP) for that country’s economy.

Answer 1

The Gross Domestic Product (GDP) in European Union was worth 19100 billion US dollars in 2019, according to official data from the World Bank and projections from Trading Economics. The GDP value of European Union represents 15.77 percent of the world economy.

It tells us what a country is good at producing. GDP is the country's total economic output for each year. It's equivalent to what is being spent in that economy. The only exception is the shadow or black economy.

• GDP is the sum of all the final expenses or the total economic output by an economy within a specified accounting period.
• It does not include the output of its underground economy.
• The BEA uses four major components to calculate U.S. GDP: Personal consumption expenditures, Business investment, Government expenditures and Net exports
• Consumer spending comprises 70% of GDP.
• The retail and service industries are critical components of the U.S. economy.

The formula to calculate the components of GDP is Y = C + I + G + NX

In brief, GDP = Consumption + Investment + Government + Net Exports.

The four components of gross domestic product are personal consumption, business investment, government spending, and net exports.

Personal Consumption Expenditures

Consumer spending contributes almost 70% of the total United States production.They are rounded to the nearest billion. The BEA sub-divides personal consumption expenditures into goods and services.

Personal consumption expenditures include:

• Durable goods – cars, furniture, large appliances.
• Non-durable goods – clothing, food, fuel.
• Services – banking, health care, education.

Business Investment

The business investment includes purchases that companies make to produce consumer goods. But not every purchase is counted. If a purchase only replaces an existing item, then it doesn't add to GDP and isn't counted. Purchases must go toward creating new consumer goods to be counted.

It consists primarily of business equipment, such as software, capital goods, and manufacturing equipment. The BEA bases this component on shipment data from the monthly durable goods order report. It’s a good leading economic indicator.

It also includes residential construction, which includes new single-family homes, condos, and townhouses.

Government Spending

The government was spending more when the economy was booming before the recession.State and local government contributions were 11%. Although this spending rose a bit, other sectors of the economy grew faster.

. Net Exports of Goods and Services

Imports and exports have opposite effects on GDP. Exports add to GDP and imports subtract.

• In personal Consumption Expenditure,Consumer Spending contributes almost 70% of the total United States production. In 2019, that was $13.28 trillion.
• In Business Investment,  there were $3.42 trillion. That's 18% of U.S. GDP. It's double its recession low of $1.5 trillion in 2009. In 2014, it beat its 2006 peak of $2.3 trillion.
• In Government Spending, It was $3.30 trillion in 2019. That's 17% of total GDP.The federal government spent $1.28 trillion in 2019. More than 60% was military spending.
• In Net Exports of Goods and Services,Imports subtracted $3.49 trillion or a little more than in 2018. Exports added $2.53 trillion, about the same as 2017 and 2018. As a result, international trade subtracted $950 billion from GDP, more than $920 billion it subtracted in 2018, and the $859 billion it subtracted in 2017.

GDP of any country is measured by taking the quantities of all final goods and services produced and sold in markets, multiplying them by their current prices, and adding up the total.

• GDP of any country can be measured either by the sum of what is purchased in the economy using the expenditures approach or by income earned on what is produced using the income approach.

• The expenditures approach represents aggregate demand (the demand for all goods and services in an economy) and can be divided into consumption, investment, government spending, exports, and imports. What is produced in the economy can be divided into durable goods, nondurable goods, services, structures, and inventories.

• To avoid double counting—adding the value of output to the GDP of any country more than once—GDP counts only final output of goods and services, not the production of intermediate goods or the value of labor in the chain of production.

• The gap between exports and imports is called the trade balance. If a nation's imports exceed its exports, the nation is said to have a trade deficit. If a nation's exports exceed its imports, it is said to have a trade surplus.

Steps to calculate GDP straightforward are as follows:

Step 1: Take the quantity of everything produced.

Step 2: Multiply it by the price at which each product sold.

Step 3: Add up the total.

For example, In 2014, the GDP of the United States totaled $17.4 trillion, the largest GDP in the world.

It's important to remember that each of the market transactions that enter into GDP must involve both a buyer and a seller. The GDP of an economy can be measured by the total dollar value of what is purchased in the economy or by the total dollar value of what is produced.