Gross Domestic Product (GDP) is a measure of a country’s economy. It consists of all goods and services that are produced by a country for economic purposes.
The GDP is considered as an appropriate yardstick that indicates a nation’s growth rate as well as the economic health of a given nation. In the United States of America, the GDP is considered as all the services and products that are produced by the Americans as well as U.S. companies. The United States of America quarterly GDP in the year between 1950 and 2011 was on average 3.28%.
The highest increase was of 17.20 in March 1950 and the lowest GDP growth that has been recorded was -10.40 recorded in March 1952. The recent economic recession slowed down the U.S. economy to a low of -5.0. Nevertheless, the U.S GDP has started growing considerably from the Federal stimulation packages. Moreover, the recent quarterly increase in the GDP can be associated with an increase in the consumption from the savings. U.S.A GDP in the year 2010 was $ 14.7 (Amadeo, 2012).
The GDP is calculated after a specified time span. For instance, GDP is often calculated quarterly or yearly. When calculating the GDP, the body concerned considers factoring in issues such as inflation in order to come up with an appropriate GDP estimation. Thus, the GDP that is generally given is often higher than the real GDP because of inflation considerations.
Calculation of nations GDP is not an easy task and that is why it is mainly delegated to economists. A country’s GDP can be calculated by summation of all people and companies earnings or adding their overall expenses. The income method that is often regarded as GDP (I) is derived by the summation of all employees payments, gross profits for both non-incorporated as well as corporate firms and taxes minus subsidies.
Conversely, the expenditure approach is arrived at by summing of investments, consumption as well as government spending and net exports. In United States of America, the GDP is calculated by the Bureau of Economic Analysis (Johnson, 2001). The BEA makes three necessary differentiations in order to arrive at a more accurate estimate while calculating the GDP.
One of the distinctions is that BEA does not consider economic activities of the U.S.A firms and Americans who are outside U.S. This is Important to avoid contradictions as a result of fluctuations of exchange rates and trade policies. Secondary, BEA takes into account the effects of inflation. Finally, BEA takes into consideration only the final product when calculating the GDP.
The United States of America GDP growth in the last quarter was 2.8%. The growth rate is less than the approximated figure of 3.2 that is anticipated to maintain the employment of its increasing population. The recent growth of 2.8% recorder in the last quarter will only increase the existing high unemployment that is rated at 9.7%.
GDP is very instrumental in guiding investors to know whether the economy is appreciating or deteriorating. This is essential in order for investors to change their asset allocations accordingly (Barnes, 2010).
The GDP is imperative to the Federal government because it helps it to know when to stimulate GDP or slow it down. It has been noted that both very low GDP growth as well as very high GDP growth have adverse effects to the economy of a nation. That is the reason why the Federal government raises the interest rates in periods of high GDP growth in order to avoid inflations.
Conversely, the Federal government injects stimulating packages when the GDP growth is down and especially during recession periods. The stimulating packages help to boost the GDP growth through increased investments and employments (Yellen, 2003). Another important element of GDP is its ability to indicate how different economic sectors are performing that is necessary for investors in making their investment decisions (Williamson, 1998).
Amadeo, K. (2012).The U.S. Economy Is Measured by G.D.P. Retrieved 17 February, 2012 from http://useconomy.about.com/od/grossdomesticproduct/p/GDP.htm
Barnes, R. (2010). Importance of Inflation and GDP. Retrieved 17 February 2011 from http://www.investopedia.com/articles/06/gdpinflation.asp#axzz1mcnHRwBA
Johnson, P. (2001). How to Calculate Gross Domestic Product. Cambridge: Cambridge University Press
Williamson, J. (1998). Importance of Gross Domestic Product. New York: Prentice Hall
Yellen, W. (2003). The Significance of GDP. New Yolk: Prentice Hall.