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BUSN300-1202A-15

GDP is the total value of all goods and services produced in a country over a specific period.

GDP is reported in two forms; constant and current dollar.

Constant dollar converts current information into base dollar.

Current dollar is based on existing market conditions and compares two periods.

In U.S GDP can either be nominal GDP or real GDP.

Nominal GDP is recorded in billions of dollars while real GDP is a percentage of a standard year.

The value of United States GDP has continued to increase in value of the years with the highest value recorded in 2010 at $ 14,526.5 billion (BEA, 2011)

Annual GDP growth is characterized by cyclic period of boom and depression.

A graph of GDP against years

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Series1

Annual GDP growth

-4.00%

-2.00%

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6.00%

8.00%

1991

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Growth in GDP increased from 1994 up to 1997 but decreased in 1998 and then increased up to 2000.

The economy registered a boom between 1998 up to 2000 reflected by increased growth rate which increased by 6.39% in 2000.

In 2001 U.S GDP growth was recorded at 3.36%, growth was 3.46%, 4.70%, 6.38% in 2002, 2003, and 2004 respectively

2006 had the highest growth in 2005 amounting to 6.49%.

In the subsequent period the economy declined in performance evidenced by reduced growth rates.

Annual growth registered amounted to 5.97% in 2006, 4.87% in 2007, and 1.87% in 2008, with the lowest being recorded in 2009 at -2.47%.

Personal consumption expenditure is the main component affecting GDP.

Economic recession can be attributed to decreased personal consumption expenditure.

Decreased consumer purchasing power leads lowers personal consumption expenditure.

In 2010 the economy improved and growth recorded at 4.21%.

In 2011 the economy or GDP is forecasted to grow by 2.7 to 2.9%.

In 2012 the forecast is that GDP will grow by 3.3 to 3.7% (The Economic Times, 2011).

Slow growth is due to increasing inflation in the country.

Increased commodity prices increase inflation.

Increased inflation reduces consumer purchasing power leading to reduced personal consumption expenditure.

GDP per capital is $ 48,666 (2010 estimates)

GDP contributing sectors include service sector with 76.9%, manufacturing sector with 21.9% and agriculture sector accounting for 1.2% (2009 estimates).

Inflation in 2010 is 1.6% and projected inflation in 2011 is 2.2%.

2000 4.1%2001 1.1%2002 1.8%2003 2.5%2004 3.6%2005 3.1%2006 2.7%2007 1.95%2008 0% 2009 -2.6% 2010 2.8%

Real GDP

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Series1

Two methods; income and expenditure methods

The income approach sums up what everyone has earned in that year.

Expenditure approach adds what everyone spent.

Income approach adds up what firms pay households for factors of production and this includes wages pair for labor, rent paid for land, interest for capital invested while the reward for entrepreneurship is profits.

The expenditure approach assumes that all products are bought by someone there adds total consumption, government spending, investments and net exports.

Income approach; GDP = compensation of employees +

gross profit for firms + taxes – subsidiesExpenditure approach; GDP = personal consumption +

government spending + investments + exports – imports

Economic Expansion provides that an increase in the value of real GDP is interpreted an improvement in the economy while decrease in GDP indicates that the economy is underperforming or is not operating at maximum capacity.

GDP is related to employment, economic growth and productivity

GDP is used to; Determine a country’s productivity Measure standards of living. Evaluate how the economy is performing

DATA ON GDP AND ECONOMIC INFORMATION. (2011). Retrieved from Global Finance: http://www.gfmag.com/gdp-data-country-reports/151-the-united-states-gdp-country-report.html#axzz1s9ytNMsh

Economic Expansion (GDP). (2011, December). Retrieved from Russell Investments: http://www.russell.com/helping-advisors/Markets/EconomicIndicatorsDashboard/EconomicExpansion-GDP.aspx

Federal Reserve cuts US GDP forecast; no hint of more support. (2011, June 23). Retrieved from The Economic Times: http://economictimes.indiatimes.com/news/international-business/federal-reserve-cuts-us-gdp-forecast-no-hint-of-more-support/articleshow/8956240.cms

National Income and Product Accounts Table. (2012, March 29). Retrieved from Bureau of Economic Analysis: http://www.bea.gov/National/Nipaweb/Tableview.Asp?Selectedtable=5&Viewseries=NO&Java=No&Request3Place=N&3Place=N&Fromview=YES&Freq=Year&Firstyear=1990&Lastyear=2010

What is GDP and why is it so important? (2007, September 19). Retrieved from Investopedia: http://www.investopedia.com/Ask/Answers/199.Asp#Axzz1aeuepbgk