Data Exercise #1 Expenditures Approach to Calculating GDP and Income Approach to Calculating GDP. Write a report which contains an analysis of the results you received. Format of the Project: The Data Exercise must be posted to the LEO Student Assignments as Attachments are limited to a maximum of two files in doc, Docx., xls. […]
The last available quarter in Q2 for the fiscal year 2020.
The Nominal GDP is greater than the real GDP by $2,204.3 billion. The nominal amount is greater than the actual amount due to inflation. The country’s inflation is a positive number, making the nominal GDP more significant. The real GDP is a reflection of an increase in the output level of the country, and it is not under the influence of inflation (Dynan, 2018). Thus, it is likely that the price of the product will increase. The difference between the nominal GDP and the real GDP is positive. That is an indication of inflation. If the amount was negative, i.e., the real GDP was more significant than the nominal GDP, then that would have indicated a deflation.
There are four main categories of GDP. They include consumption, investment, spending by the government and net export. Net exports represent the difference between the imports and the export of a country. The figures are usually reported in real GDP to better compare the four components. Personal consumption expenditure usually constitutes the most considerable portion of the GDP. Government spending’s investment contributes an average amount to the GDP. The last contributor to the real GDP is net exports of goods and services in and out of a country. A country can have a trade deficit if the amount of imports exceeds exports.
Gross Private Domestic Investment is a representation of the physical investment used in determining the GDP to gauge a nation’s economic activities. Domestic investment is vital in measuring the future productivity capabilities of an economy. GPDI is determined by summing expenditures in businesses, expenditures by the landlords and the changes that take place in the inventory. The two main components of GPDI are fixed investments and changing inventories. The net investment is determined by subtracting the depreciation from the gross investment. All the capital goods that are key in production, including the users in replacing capital depreciation, are incorporated in GPDI.
Net exports of goods and services measure the total trade in a country. Net export is the difference between a country’s exports and imports. The value of net exports for the last available quarter is $-536.8 and $-760.9 for the nominal and real GDP, respectively. The amounts are harmful because the value of the imports in the country exceeds that of the exports. In the international market, the prices of some goods and services may not exist (Aitken, 2019). If the prices do exist, they might not reflect the valuation that is present in society. Thus, the net exports of goods and services become negative due to the fluctuation in prices. The import prices may be higher than the export prices.
The data from the data exercise is essential in knowing the level of performance of the economy. It is possible to know if the economy will undergo a recession if there is inflation. From the GDP, the living standards of the citizens can be determined. Since the GDP is higher, the government should consider allocating more resources to the healthcare and education sector. From the exercise, I have learned that it is possible to have a negative net export of goods and services and still have a well-performing economy. When the amount is negative, it does not mean that the economy is worse off. Instead, it implies that the country can export goods with an absolute advantage in production.
The last available quarter in Q2 for the fiscal year 2020
GDP is the number of finished goods and services of a country within a specific time. GNP, on the other hand, is a representation of the goods and services that a nation’s residents have for a given period (Antonio, 2016). Both GDP and GNP measure the economic growth of a country. However, GDP has limitations within the boundaries of a country, while GNP includes overseas contributions. The calculation that needs to be conducted to know the GDP is to determine the summation of the consumption, investment, government expenditure and export earnings amount. For the GNP, the calculation involved determining the net income flow that is from the foreign countries and less the net income outflow from the same foreign countries. The overall amount will be added to the GDP.
National income is the value of the total output of the goods and services produced within one year. National income and the GDP account for the imperfect measure of the welfare of a country (Aitken, 2019). For the second quarter of the 2020 fiscal year, the gross national products were higher than the national income by $3,535.2 billion. The NI is determined from the GNP, and the calculation will involve the determination of expenses and less it from the GNP. There are five major national income categories: wages and salaries, profits from trade, consumption allowances, self-employed income and imputed income. Salaries and wages constitute the most considerable portion of NI. The data from the exercise is significant as it will show the performance of various sectors of the economy for a specific financial year. From the exercise, I have learned that it is possible to use the national income to gauge the country’s performance.
Aitken, A. (2019). Measuring Welfare Beyond GDP. National Institute Economic Review, 1(249): 3-16.
Antonio, A. (2016). Gross Domestic Product (GDP) and Gross National Product (GNP). Encyclopedia of Business Ethics and Society, Forthcoming, IESE Business School Working Paper No. 1153-E. Pp. 1-8.
Dynan, K. (2018). GDP as a Measure of Economic Well-Being. Peterson Institute of International Economics, Hutchins Center of Fiscal and Monetary Policy, Brookings. Pp. 1-53.
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Published On: 01-01-1970