Expected U.S. GDP Growth Rate Going Forward

In the fourth quarter of the previous year, the country’s GDP expanded 3.1%. There was an increase of 3.1% in real GDP. This reflected a 0.5% increase from the previous quarter. Real GDP is the production of commodities and services produced by resources in the country. Real GDP increase could be explained by contributions from consumptions, exports and non-residential fixed investment. The contributions were balanced by negative contributions from private inventory investment, state and local government spending and imports (Trading Economics, 2011). This is indeed a positive contribution to the economy and it shows that the country’s economy is looking up.

The gross domestic product measures the national income of a particular country. It is the total value of all services and goods produced within that country during a specified period. Nominal GDP is the production of goods and services valued at current prices. Real GDP is the production of goods and services valued at constant prices (Mankiw, 2008). To calculate the gross domestic product, one can use any of the three methods. To calculate GDP using the product approach, one calculates the total market value of the services and commodities produced. The second method is the income approach, which determines the GDP by working out the total proceeds received by the producers. The expenditure approach is the most commonly used method. The GDP is determined by working out the final amount of the total costs of all services and commodities. It adds the consumption, investment, government purchases and net exports (Study Forex, n.d.).

Consumption is the spending by households on goods and services but does not include the purchase of new housing. It is the total amount of expenditures on durable goods and non-durable produce and services such as food, clothes, fuel and medical services. Investment is the purchase of goods that will be used in future to produce more goods and services. It includes capital equipment such as the machinery of companies, construction of new infrastructure and the purchase of new homes and inventories. Government spending includes spending on goods and services by local, state and federal government. Purchases of items such as military equipment, paying government officials and paying for infrastructure maintenance are part of government purchases. Social security benefits are not part of government purchases but they are classified as transfer payments because they are not exchanged for a currently produced goods or services (Mankiw, 2008). Net exports are the total exports (domestically produced goods) minus total imports (domestic purchases of foreign goods).

In the fourth quarter of the previous year, real personal consumption expenditure increased at a rate of 4%, durable goods increased 21.1%, non durable goods increased 4.1%, real commercial fixed investment increased 7.7%, real exports of services and commodities increased 8.6% and real imports of services and commodities decreased 12.6%. There was a 2.2% decrease in national defense, non-defense increased 3.7%, the state and local government expenditure, gross ventures decreased 2.6%, and real final sales of domestic product increased 6.7% (Trading Economics, 2011).

Though GDP is a good measure of the country’s economy, it fails to include some of the most important values. It does not include volunteer services; it excludes the values of goods and services produced in the home such as parental health care. GDP also excludes the quality of the environment yet the government has put in place environmental regulations, which companies must abide by and which affect the value of GDP. The gross domestic product does not include distribution of income (Mankiw, 2008).

References

Mankiw, G. N. (2008). Principles of economics. New York, NY: Cengage Learning.

Trading Economics (2011). United States GDP growth rate. Retrieved from http://www.tradingeconomics.com/Economics/GDP-Growth.aspx?Symbol=USD

Study Forex. (n.d.). Gross domestic products-GDP. Retrieved from http://www.studyforex.com/gross-domestic-products.html