Question

Please provide a real world example of of how GDP is used to calculate economic growth in the United States.

Answer 1

Gross domestic product (GDP) is the aggregate of country’s consumption spending (C), investment spending (I), government spending (G), and net export (Nx) in a period within the boundary.

The net export (Nx) = Export – Import

GDP = C + I + G + Nx

As per the year 2018 data:

C = this is nearly 70% of the total GDP

I = this is nearly 12% of the total GDP

G = this is almost 8% of the total GDP

Nx = this is nearly 10% of the total GDP

GDP of the country = $20.7 trillion in the 3^rd quarter of 2018.

GDP of the country = $20.0 trillion in the 2^nd quarter of 2018.

GDP growth rate = (Difference in GDP / GDP of 2^nd quarter) × 100

                             = {(20.7 – 20.0) / 20.0} × 100

                             = (0.7 / 20) × 100

                             = 3.5%

The growth in the 3^rd quarter is 3.5%.

GDP is the indicator of growth, since it creates earning opportunity, employment opportunity, better standard of living, and increasing economic scopes. Suppose it increases per capita income by dividing total GDP by the number of population of the country; and it decreases unemployment rates.

By the effect of GDP growth during the 3^rd quarter, the per capita income increases by 2% and the unemployment rate decreases by almost 3.1%.