Gross Domestic Product Essay Samples

Introduction

GDP is defined as the sum value of all goods and services produced in the country (in our case - the United States). There are nominal (absolute) and real (inflation-adjusted) GDP. In the latter takes into account the extent to which real GDP growth is determined by the growth of production, rather than price increases.

Body

Costs in the economy have a variety of forms. The Smith family has breakfast in the restaurant, General Motors is building a new automobile plant, naval department orders new submarine, and the airline British Airways buys a new Boeing airplane. GDP includes all types of expenditures on domestically produced goods and services. To better understand the functioning of the economy in terms of its limited resources, the scientists analyzed the composition of GDP for various types of expenses as follows. In the simplest case, when calculating GDP accounted for 4 main components, consumption (C), investment (I), government spending (G), and net exports, i.e., full export minus full import (X-M, from eXport - iMport):
GDP = C + I + G + (X - M)
This equation is essentially an identity valid for any values ​​of variables occurring in it, because every dollar spent, accounted for in GDP is reflected in one of the four components of the costs.

Consider one simple example of each component of GDP.

Consumption is a household spending on goods and services, such as payment of the Smith family breakfast in the restaurant.
Investment is the cost of purchasing equipment, real estate, as in the case with the construction of a new factory by General Motors. K These include the costs for the purchase of new housing, which formally represent household spending, but at its core is an investment.
Government procurement fincludes the costs of public authorities at all levels to acquire the necessary goods and services to them, such as the purchase of the Navy Office new submarine.
Net exports are the difference between the amount of proceeds received from the sale of domestic products in foreign markets (exports) and purchases of foreign goods (imports). When the domestic firm sells its products abroad, as in the case of transactions between the US Company Boeing and British British Airways, US net exports increased.
In the structure of (C) is usually 3 different subclasses: the consumption of durable goods (over 3 years) use (durable goods - cars, furniture, etc), short-term (less than 3 years) use (nondurable goods - clothing, food, medicine, etc.) and services (services). As a percentage of durable goods account for about 15%, nondurables - about 31%, and services - about 54% of the total consumption (remember that we are talking about America). In general, C defines at present, about 56% of GDP and is thus an essential component of it. Investment (I) account is around 14% of GDP, government spending (G) - social benefits, weapons, interest on government bonds, etc. - 17%, and finally the export (X - M) - about 13%. Note that for the US the last component of GDP would be more logical to call net imports, as the country imports far more goods and services than it imports (i.e., the value of X - M is negative). The larger-than-expected GDP growth usually leads to lower prices for securities with fixed income: yields are rising. This is explained by the fact that the growth of economic activity is associated with an increase in salaries, respectively, the value of goods and services, and finally inflation. Historical evidence supports this argument.

Conclusion

Thus, the definition of GDP by expenditure includes records of all expenses produced in the country during this period. As can be seen from the above examples, each type of expenditure affects the way of our life – from a breakfast in restaurant to Boeing planes.

References

Coyle, Diane (2014). GDP: A Brief but Affectionate History. Princeton, NJ: Princeton University Press. ISBN 978-0-691-15679-8.