Question

Accessing the Bureau of Economic Analysis Website Study real GDP growth rates and their components for the four most recent quarters and complete the following: Identify and explain the components that comprise GDP and their relative contributions to GDP. Describe the recent rate of real GDP growth. Identify and analyze the factors that have driven growth (or the lack of growth) in real GDP. Identify any recent events or changes that have caused an increase in GDP but not a correlating increase in our nation's standard of living. Forecast real GDP growth over the next year and explain your answer.

Answer 1

The BEA uses four major components to calculate U.S. GDP: Personal consumption expenditures, Business investment, Government expenditures and Net exports.

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

Personal consumption:Consumer spending contributes 69% of total United States production. In 2018, that was $12.94 trillion.2 Note that the figures reported are real GDP. It's the best way to compare different years. They are rounded to the nearest billion. The BEA sub-divides personal consumption expenditures into goods and services.

Services are almost half of U.S. GDP. These include commodities that cannot be stored and are consumed when purchased. It contributes 45% of GDP. That's a big increase since the 1960s when services contributed 30% to GDP. Thank the expansion in banking and health care. Most services are consumed in the United States because they are difficult to export.

Why does personal consumption make up such a large part of the U.S. economy? America is fortunate to have a large domestic population within an easily accessible geographic location. It's almost like a huge test market for new products. That advantage means that U.S. businesses have become excellent at knowing what consumers want.

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.

In 2018, business investments were $3.36 trillion.2 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. The BEA divides business investment into two sub-components: Fixed Investment and Change in Private Inventory.

Government Spending:

Government spending was $3.22 trillion in 2018.2 That's 17% of total GDP. It's less than the 19% it contributed in 2006. In other words, the government was spending more when the economy was booming before the recession.

The federal government spent $1.23 trillion in 2018. More than 60% was military spending.

State and local government contributions were 10%. Although this spending rose a bit since 2017, 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.

The United States imports more than it exports, creating a trade deficit. America still imports a lot of petroleum, despite gains in domestic shale oil production.

Services are difficult to export. In 2018, imports subtracted $3.45 trillion or a little more than in 2017.2 Exports added $2.53 trillion, about the same as 2017. As a result, international trade subtracted $900 billion from GDP, more than the $859 billion it subtracted in 2017.

Factors affecting gdp growth:

• Natural Resources. The discovery of more natural resources like oil, or mineral deposits may boost economic growth as this shifts or increases the country's Production Possibility Curve. ...
• Physical Capital or Infrastructure. ...
• Population or Labor. ...
• Human Capital. ...
• Technology. ...
• Law.

The generally accepted measure of the standard of living is GDP per capita.  This is a nation's gross domestic product divided by its population. The GDP is the total output of goods and services produced in a year by everyone within the country's borders.

The demerit of gdp per capita is some individuals creating large contribution and someone is not but here everyone is contributing equal in gdp. That's a flaw.

Real gross domestic product (GDP) is GDP given in constant prices and refers to the volume level of GDP. Constant price estimates of GDP are obtained by expressing values of all goods and services produced in a given year, expressed in terms of a base period. Forecast is based on an assessment of the economic climate in individual countries and the world economy, using a combination of model-based analyses and expert judgement. This indicator is measured in growth rates compared to previous year.