November 4, 2014
GDP And Its Relation to Me
The gross domestic product (GDP) is one the main sources used to determine how healthy a country’s economy is. It represents the aggregate or total dollar worth of all goods and amenities produced over an exact time period. In other words it is the size of the economy. Wikipedia defines GDP as "an aggregate measure of production equal to the sum of the gross values added of all resident institutional units engaged in production (plus any taxes, and minus any subsidies, on products not included in the value of their outputs)." The subject was really new to me and I would have never even thought about GDP but as I have learned it is a very important part of my life as a working American citizen with a family. Typically, GDP is communicated as a link to the prior quarter or year. For instance, if the year-to-year GDP has risen 2%, then you can assume that the economy has grown 2% comparing to the previous year.
In Macroeconomics we learn about how to measure or calculate GDP and that’s where it became more personal to me. Basically you add up all of the income in the United States minus the imports and that’s your GDP. Or on the other hand you can add up everything we have spent in the US and both of the numbers should be around the same. This is where we have an equilibrium which is what most countries strive for. I think about it as a steady flow of traffic coming and going. Well, that’s in a perfect economy. Somewhere along the lines of addition to determine the GDP my income and expenditures play a very small part in this “number.” Just knowing that gives me quite pleasure. The expenditure method is the most used approach when determining GDP and is calculated by adding total consumption, investment, government spending and net exports. This year so far the GDP is at 3.5% according to the Bureau of Economic Analysis website. I feel this is a great sign. Some people that don’t know much about the economy would like to always see a rise in the economy. I also shared this feeling until I started to learn in this class. If the economy rises too much the result would be inflation! Inflation most simply defined as a rise in prices.…