Data Exercise 1
Part 1: Expenditures Approach to Calculating GDP
To measure a country’s economy, the Gross Domestic Product (GDP) is the total
value of the final goods and services produced by all people and companies within the
geographical boundaries of that country in a given period (Amadeo, K., 2017). The
expenditures approach is the most widely used approach to measure the GDP. To calculate the
expenditures approach there are four main categories that go to the GDP. The consumption by
households, investment by businesses, government spending on goods and services, and net
exports, which are equal to exports minus imports of products and services (Staff, I., 2016).
The Nominal GDP and the Real GDP are both used to show a country’s economy. The
Nominal GDP uses raw measurements from the four categories to include price increase.
Real GDP calculates the rise in prices resulting from inflation in the economy and is
compared to the costs of a base year (Amadeo, K., 2017).
Real GDP provides a much more
accurate up to date assessment of the country’s economy because it shows the actual growth
rate of the current economic output being measured at base year prices, whereas, nominal
GDP shows current output at the current prices.
During inflation, the nominal GDP is higher than real GDP, because real values are
adjusted for inflation, while nominal values are not. Table 1 shows, the 2nd quarter of 2017,
the nominal GDP was $19,250 billion and in the 3rd quarter was $19,495.5 billion.
percentage change in during this time frame was 1.28%.
The real GDP in the 2nd quarter of
2017 was $17,031.1 billion and increased to $17,156.9 billion in the 3rd quarter.
percentage change from the 2nd to the 3rd was only a 0.74%.
An increase in economic
productivity, personal consumption expenditures, private investments, exports of goods and
services and government consumption and investments can all account for an overall increase
of the nominal and real GDP from the 2nd quarter of 2017 to the 3rd quarter.