Question

Write one page using the data (from 2009-2017), explain the effect consumption it has on GDP. Using details in crisis situations (such as the global crisis) and other situations why this happened.

Answer 1

Solution:

Personal consumption drives the American economy. Personal consumption historically represents 70% of US GDP.

We will examine personal consumption expenditures using the expenditure approach:

C + I + G + (X - M) = GDP

C = Personal Consumption Expenditures

I = Gross Private Fixed Investment

G = Government Expenditures and Investment

X = Net Exports

M = Net Imports

The personal consumption expenditures price index (PCE) measure is the component statistic for consumption in GDP collected by the Bureau of Economic Analysis. It consists of the actual and imputed expenditures of households and includes data pertaining to durable and non-durable goods and services. It is essentially a measure of goods and services targeted towards individuals and consumed by individuals. If we look at the data and analysis the contribution of personal consumption on GDP at the end of the fourth quarter or financial year:

In 2009, approx 67.83% of total GDP is personal consumption

In 2010, approx 68.05% of total GDP is personal consumption

In 2011, approx 67.92% of total GDP is personal consumption

In 2012, approx 67.94% of total GDP is personal consumption

In 2013, approx 67.50% of total GDP is personal consumption

In 2014, approx 68.09% of total GDP is personal consumption

In, 2015, approx 68.76% of total GDP is personal consumption

In 2016,approx 69.44% of total GDP is personal consumption

In 2017, approx 69.62% of total GDP is personal consumption

So, we can see over the years the personal consumption has been increased which is clearly indicating that the economy is in the path of growth.

In 2016, American households spent $11.6 trillion. Sixty-five percent went toward services. The biggest component was housing, at $2 trillion. Next was health care, at $1.9 trillion. After these essentials were covered, financial services and hotels/restaurants were next, at $700 billion each. Other forms of recreation and transportation services contributed $4 billion each. Non-profits provided $300 billion in services. Americans spent one-third of total expenditures on goods.They spent $2.5 trillion on non-durable goods, such as food, clothing and energy. Durable goods totaled $1.5 trillion. They spent $600 billion on recreational goods, mostly consumer electronics. They spent $400 billion each on automobiles and furniture.

As we can see from the graph above, with a rise in GDP, personal consumption is also increasing. The contribution of personal consumption towards GDP has been increased simultaneously. A large driver of this growth has been the dramatic increase of the financial services and health care services industries.