Gross Domestic Product Essay Example for Free

Gross Domestic Product Essay 2. Using information from our textbook and from the following BEA links, define each of the sub components of GDP and discuss their importance. (20 points) The BEA links are: http://www.bea.gov/national/pdf/nipa_primer.pdf â€Å"Measuring the Economy: A Primer on GDP and the National Income and Product Accounts† http://www.bea.gov/about/pdf/jep_spring2008.pdf â€Å"Taking the Pulse of the Economy: Measuring GDP† http://www.bea.gov/scb/pdf/national/nipa/methpap/mpi1_0907.pdf â€Å"An Introduction to the National Income and Product Accounts† 1. GDP is Gross domestic product. GDP is the market value of all the goods and services produced by labor and property located in the country. The GDP is comprised of Sub-Components to the Major Components. The components of Gross Domestic Product (GDP) tell you what that country is good at producing. 2. Personal consumption measures the real value of goods and services purchased by individuals. It is very important because over 70% of what the U.S. produces is for personal consumption. 3. Goods Comprehensive is the measure of how much consumers spend each month. This uncludes durable goods, consumer products, and services. This is an important factor because it is an included measure of GDP, and the figure acts an indicator for economic trends. How much consumers spend also has an affect on inflationary pressures. Goods or products make up nearly one-fourth of the US economy. 4. Durable Goods are the hard goods that yield utility over time, rather than being completely consumed all at once. Some examples of durables goods are automobiles, jewelry, and furniture. Although this is the smallest category (only 7%), it still has an impact on GDP. 5. Nondurable Goods are soft goods or consumables, which are goods that need replaced immediately or are used all at one time. Examples of nondurable goods are food and clothing. These goods also make up a small portion (16%), however, still important to GDP. 6. Services are explained as the non-material equivalent of a good. Service provision has been defined as an economic activity that does not result in ownership. No transfer of possession takes place when services are sold. Examples of such are financial services or healthcare. Nearly half (47%) of US GDP is made up services, not products. This makes this portion very important. 7. Gross private domestic investment (I) are the expenditures on capital goods that are used for productive activities in the domestic economy that are undertaken by the business sector during a given period of time. Gross private domestic investment make up anywhere between 12-18% of gross domestic product. Investment is an important cause of business fluctuations. 8. Fixed investments are the investment expenditures that include capital goods, such as means of production, that most people consider spending on fixed capital. This area is important because it is one of two main categories of gross private domestic investment included in the National Income and Product Accounts maintained by the Bureau of Economic Analysis. 9. Nonresidentials are the purchases of nonresidential structures, equipment, and software. Nonresidentials are important for future productivity growth, optimism of businesses, and economic growth. 10. Structures are important in general. These are office buildings, shopping centers, warehouses, restaurants, industrial buildings and institutional buildings. 11. Equipment and software are hardware and machinery. These are important for increasing and improving productivity. 12. Residentials are homes, apartments, or condominiums and residential equipment that is owned by landlords and rented to tenants. These areas account for about a quarter of all private investment. 13. Change in private inventories are the changes in inventory investment which measure the value of the change in the physical volume of inventories over a specified period. This includes the value of goods owned by private business at the end of a specified period, whether the goods were made in that period or in the past. Inventory investment makes up a very small percentage of GDP, however, it is still an important component of GDP. 14. Net exports of goods and services (X-IM) are described as the growth in imports and exports of goods in the U.S. These goods are only finished goods, not including intermediate products. Imports and exports have great effects on GDP. 15. Exports (X) are an addition to GDP and therefore, are important. They are a way of economic transfer. 16. Goods are the physical products sent or transported abroad for future trade or sale. 17. Services include non-material goods. This is usually economic activity sold outside the US. 18. Imports (IM) are economic transfers that are opposite, yet greater than exports. 19. Goods include physical products that are purchased and sent in from foreign countries. 20. Services are non physical products that are sent in from foreign countries. 21. Government consumptions expenditures and gross investment (G) is usually subtracted from the actual GDP numbers and the growth rate. This is so that it is possible to reach an easier understanding of activity and demand. Because the governments actions can be dependent on other factors than supply and demand, it is important to reach this figure. 22. Federal is the measure of the federal governments expenditures.