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GDP Expenditures Approach & Income Approach

GDP Expenditures Approach & Income Approach

Why the nominal GDP was more significant than the real GDP

Having analyzed the data presented in Table 1, it is clear that the nominal figure of gross domestic product is more significant than real gross domestic product, as 2,700.3 billion dollars. This is because inflation is a positive figure used in the adjustment or real to nominal GDP. This indicates that the growth in real GDP reflects an increase in the output that is not influenced by the effect of inflation on the price level. Therefore, where inflation exists, nominal GDP rises at a greater than the real GDP.

Table 1. GDP Expenditures Approach: Level and Change from Preceding Period

 Nominal at annual rates fourth quarter: Billions of dollarsReal at annual rates fourth quarter: Billions of chainedPercentage in nominal GDP and real GDPPercentage in real GDP
Gross domestic product21,494.7018,794.40
Personal consumption expenditures14,537.0012,999.1068%69%
Gross private domestic investment3,926.303,539.9018%19%
Net exports of goods and services-803.7-1,122.00-4%-6%
Government consumption expenditures and gross investment3,835.203,320.4018%18%

GDP categories

There are four categories of Gross Domestic product, with real GDP being adjusted for inflation. Here, commodities prices are calculated at a constant price level, which is set at a predetermined base year, thus providing an accurate image of economic growth. Nominal GDP, on the other, is calculated inclusive of the effect of inflation on the general price levels during a given period. Actual GDP is the measurement that measures the effect of the economy at a particular time. In contrast, potential GDP is calculated under particular economic conditions, for example, low inflation, full employment at a steady currency. Therefore, the minor potion is real GDP due to the removal of inflation, which is always a positive figure.

Gross private domestic investment

The gross private domestic investment (GPDI) measures the amount that the domestic firms invest in a given country’s economy. GDPI is a component of the Gross domestic product that facilitates the estimation of the overall economic activities within an economy. The gross investment figures include all the commodities and can be used to determine the capital consumption adjustment by subtracting depreciation (Ameer et al., 2017). It is inclusive of private investment in the economic activities in the economy while excluding all foreign investments.

Net exports of goods and services

Net export of goods and services is a measure of the total trade in a given country, thus the total value of all imported commodities minus the exports. This figure of the net exports of goods and services indicates a trade deficit in the economy and is a component of the negative balance of trade. The figure is negative due to the low labor capacity in the country, something that can be attributed to the fact that skills labor capital is not readily available, thus making the net economy exporter.

GDP Expenditures Approach & Income Approach

Percentage of National defense out of GDP

This measures the country’s defense industrial complex’s burden on the economy, which is a crucial indicator of the government’s foreign policy. In this case, twenty-three point five-eight percent of the commodities in a given economy are dedicated to the defense system.

The significance of the data

The data provided for this exercise is beneficial in examining the models and theories in identifying the empirical patterns, economic variable forecasting, and decision making. It is advantageous in measuring macroeconomic settings using objective data and thus valuable for identifying economic rationale in measuring costs and benefits. It facilitates the understanding of the problems in the United States during the year in the organization, interpretation, structuring, and presentation of economic data.

Reflection

Having analysis, the economic data provided indicates that the United States is a highly developed mixed economy that can be attributed to the high value of the commodities produced. Furthermore, most of the commodities consumed within the country are produced outside, which can be attributed to the relatively higher labor cost in the United States compared to outside. Additionally, I learned that the United States aspects almost a quarter of the value of the commodities produced on defense, which may indicate the overreliance of military strategies on implementing and safeguarding the county’s foreign policy.

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Part 2: Income Approach to Calculating GDP

Table 2. Relation of Gross Domestic Product, Gross National Product, and National Income [Billions of dollars]

Gross domestic product (GDP)21,494.70
Gross national product21,704.60
Net national product-351.60
National income18,435.50
Personal income19,649.90
Personal Disposable Income17,379.70
Personal Savings2,367.30

The difference between gross domestic product (GDP) and gross national product (GNP)

Gross domestic product (GDP) represents the total value of the commodities produced within the borders of a given country. In contrast, gross national product (GNP) is the total value of the commodities produced by residents of a given country, regardless of their geographical location. GDP measures the value of economic activities generated within a given economy, even when the non-residents produce them. In contrast, the GNP measures the value of the national economic output of a given country, thus those within and beyond borders with the inclusion of domestic and foreign assets.

GNP from GDP

To determine the value of the commodities produced by the United States citizens from the commodities produced within the United States soil would have to as the net factor income from abroad, thus giving the value of the economic productivity of the Americans. This indicates the United States gross domestic product (GDP) adding the income receipts from the rest of the world, minus the income payments to the rest of the world, leading to the figure of 21,704.60 billion dollars.

National income (NI)

National income is the value of the commodities produced within the boundaries of a given country over a given period, usually one year. It represents all the economic activities carried out over a given period in monetary value. Therefore, it measures the sum of all wages, trading profits, imputed income, capital allowance and the income of earned by the self-employed, and facilitates the formulation of economic policy.

GDP Expenditures Approach & Income Approach

Which was higher in this year, GNP or NI?

In the United States case, the gross national product (GNP) is greater than the National income, by $3,269.1 billion, something that is due to the subtraction of consumption of fixed capital and the statistical discrepancies. Therefore, this the value of all the commodities produced by the domestic citizens of the country.

Determine NI from GNP

To determine the value, national income can be determined from the gross domestic product by subtracting statistical discrepancies and capital consumption. The residual value is the value of the commodities produced by the domestic citizens.

NI is composed of several categories

National income is the monetary value of the commodities produced within a given country and can be used interchangeably with other concepts like national expenditure output and dividend. One of the components of national income includes wage and salaries represents the value of production that includes compensation before the deduction of social security, income tax, and provident fund contribution. On the other hand, gross trading profits publicly or privately owe output in the sale of outputs in the market. Capital consumption allowance is the depreciation of capital assets, while income from the self-employed and lastly is imputed income.

Personal Income from National Income

Personal income equals the national income, plus the income-earner but not received plus the amount of income received but not earned. Therefore, the amount of money that is received by the inhabitants of a given country, obtained by adding payments to individuals plus those made to the government, less the social insurance contribution for the employee (Hopcroft, 2021).

Personal Disposable Income and Personal Savings

Disposable personal income is the collective after-tax income for non-profit corporations and individuals; thus, the amount they can save and spends after the payment of taxes. It is obtained from employee compensation to wages, capital consumption adjustment, personal income on receipts, and less personal current tax and government social insurance contributions. By subtracting personal outlays from disposable income, the value of personal savings is obtained.

Significance of the data and reflection for this Data exercise

This data exercise has clarified my understanding of obtaining personal income and its disposition, something that can be used to determine the citizens’ ability to live a quality life. This exercise has enhanced my understanding of the metrics used in the consumer sector’s gaging health on services, durable and perishable goods.

Expenditures Approach to Calculating GDP

References

Ameer, W., Xu, H., & Alotaish, M. S. M. (2017). Outward foreign direct investment and domestic investment: evidence from China. Economic research-Ekonomska istraživanja, 30(1), 777-788.

Hopcroft, R. L. (2021). High income men have high value as long-term mates in the US: personal income and the probability of marriage, divorce, and childbearing in the US. Evolution and Human Behavior.

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