Gross Domestic Product and the United States Essay

Gross domestic product, or GDP as it is commonly referred to as, is a popular economic means for measuring how large a country or area’s economy is. Though coming up the an actual calculation for the full breadth of a country’s economic prowess is difficult and quite involved, this is one way of determining that for the basis of comparison with other countries. In general, this is a system that takes the total amount of all of the goods and services that are rendered in a country during a given time frame and combines them to create the final number. Though the actual calculation is much more complicated than that rudimentary explanation, the basic premise behind gross domestic product can be explained in that elementary fashion. There are many different calculations that go into determining the gross domestic product of the United States in 2006. According to statistics provided by the United States Central Intelligence Agency, the number that was calculated for the U. S. GDP in 2006 was estimated at $13. 06 trillion (CIA). That number was calculated based on a number of factors, all of which will be discussed below. One aspect that goes into helping create the gross domestic product figure is the consumption function. To be succinct, this is the number that indicates widespread consumer spending in the United States. According to information produced by the economics department at Baylor University in Waco, Texas, the consumption function is, â€Å"The relationship between the level of income in an economy and the amount households plan to spend on consumption, other things constant† (Baylor). It is calculated as a part of the GDP listed above. According to statistics put out by the Bureau of Economic Analysis in the United States, the total consumer consumption during 2006 was $9. 2 trillion (BEA). Another aspect of gross domestic product that is calculated is the government function. This is the amount of consumption that the government accounts for in accordance to the GDP statistics. According to the 2006 GDP report put out by the BEA, the government function was $2. 2 trillion during 2006 (BEA). That amount is ultimately added in with the rest of the expenditures of the nation in order to come up with the final gross domestic product number. The investment function is another thing that goes into the calculation of gross domestic product. According to the same information put forth by Baylor University, the investment function is, â€Å"The relationship between the amount businesses plan to invest and the level of income in the economy, other things constant† (Baylor). The United States economy has seen this number fluctuate quite a bit during the last few years. In 2007, it has been down in compared to previous years. It contributed to the 2006 gross domestic product statistic with a number of $2. 2 trillion, according to the BEA (BEA). That number is a strong one when compared to other years for the U. S. economy. Gross domestic product also takes into account how much the U. S. economy exports during the year. Though there are lots of different calculations that go into coming up with the net export function, one final calculation is given by the BEA report for 2006. Net exports during 2006 totaled negative $762 billion (BEA). The current economic trend has this number heading further down, as it was lower than the previous three years. This number means that the U. S. is importing far more goods than it is exporting, a signal that manufacturing in the United States is heading the way of the dinosaur. That number should continue to sink, as the U. S. makes more trade relationships with countries and imports more and more goods in the near future. On the whole, the U. S. economy is producing a fair amount of products and services. The balance that exists between the payments and the level of commerce seem to be steady. As such, the economy has grown to a huge size that looks to only be getting bigger as more and more American companies expand their capabilities both in the U. S. and abroad. The economy has some problems, but size is not one of them. The production of services and products in America is strong when compared to the amount of expenditures, although consumer debt is threatening to eat up the surplus. When it comes to gross domestic product growth, there are a number of different factors that can power a move forward. Depending upon the nation and the time in which GDP is being measured, quite a few variables could force the growth of the economy. For example, the third quarter 2007 numbers for the American economy showed very strong economic growth. In fact, the gross domestic product grew by an annual rate of 4. 9% during that third quarter, up substantially over both the first and second quarter time periods. According to a news release from the BEA entitled, Gross Domestic Product: Third Quarter 2007 (Preliminary), â€Å"he increase in real GDP in the third quarter primarily reflected positive contributions from exports, personal consumption expenditures (PCE), private inventory investment, equipment and software, federal government spending, nonresidential structures, and state and local government spending that were partly offset by a negative contribution from residential fixed investment† (BEA). The report went on to say that the growth in GDP during the quarter was somewhat stifled by an increase in imports, which obviously account for a negative calculation in the GDP equation. On a more personal level, there are quite a few things that individuals can do to both help themselves out and help the American economy continue its growth. These things are outlined below. The first and foremost thing that Americans can do in order to help grow the U. S. GDP is to be more productive. Since the economy grows on the basis of how much of services and products are produced, any bump in productivity on an individual level will lead to further production for big businesses and small businesses alike. This is true for people who work for a large corporation, as well as those who might own their own business. Individuals can only do so much in improving the GDP, so it takes a collective effort in increased productivity to raise the number a substantial amount. In addition to that, people being smarter with their money will help the gross domestic product rise. Consumer expenditures hurt the gross domestic product and people that waste their money paying credit finance fees are not doing anything to help themselves. Smarter saving plans and investment planning can help individuals grow their money and help businesses produce more on a national level. At the root of those things is an increase in work ethic for individual workers. If people begin to take work and their financial future more seriously, then they can better produce. Since an increase in work ethic has a direct correlation to the increase in production, gross domestic product is benefited by an increase in the American work ethic. Education is helping to boost the GDP, as well. The American people are a highly educated group, when compared to other areas around the world. Education gives a person the power to operate in a business setting and help his or her company grow their production. Since a focus has been put on education in the Untied States, the gross domestic product has seen significant growth. A byproduct of education is most certainly entrepreneurialism. With more and more individuals getting higher education and learning the necessary skills to start their own business, there exists a larger number of Americans who are willing to work for themselves. If they apply a strong work ethic to go along with their education and their new found entrepreneurial nature, they can single handedly improve the American gross domestic product. Aside from what individuals can do to help improve the gross domestic product, the federal government has a lot of control over what happens with the GDP. A single decision on a monetary policy can change the way that the U. S. economy operates during the coming year and can help stimulate the economy into more production. Likewise, a fault economic policy can serve to impede the progress of economic growth. A 2000 article in AllBusiness worries about this. In his article, Tao Zha writes, â€Å"When the federal open market committee (FOMC) began raising interest rates in June 1999 to forestall inflationary pressures, concern mounted that monetary policy moves might slow the pace of economic growth, undoing the employment gains minorities and other disadvantaged groups made during the 1990s† (Zha). As such, the federal government has to protect its own interests in how it decides to shape economic policies for the future. International policy can also influence GDP growth. Because so much of the economy’s growth depends on how much it can produce and export, the government has to be careful not to break any ties with international governments. In addition, the U. S. government must always take great care not to disrupt any relationships that the nation has with countries that provide things that the American people have to have. One example of this is with oil, as American policy is shaped to not disrupt any working relationships with countries that provide oil. Other economic decisions can have similar impacts on the gross domestic product and its subsequent growth. In order to continue the positive growth that the GDP has seen in recent years, Americans simply need to keep doing what they have been doing. Strong trends in education and an upswing in work ethic are good signs for economic growth. In addition, more measures have to be taken to keep unemployment rates low, as the more people that are working, the more production companies can have. In addition to boosting education on a basic level, the federal government should do more to promote financial education among all of its citizens. A general public that makes better decisions with its money is one that will help promote economic growth for the future. In closing, the gross domestic product of the United States is growing at a rate that one might expect at this point in time. With more and more businesses popping up because more people are going to college than ever before, the federal government just has to insure that they do not do anything to screw up the progress. Americans are people that like to work and they strive for productivity. Those factors alone will lead to continued growth of the GDP in the United States. Works Cited Baylor University. Chapter 9: Components of Aggregate Expenditure. http://business. baylor. edu/Tom_Kelly/2307ch9. htm Bureau of Economic Analysis. Gross Domestic Product: Third Quarter (Preliminary). 29 November 2007. http://www. bea. gov/newsreleases/national/gdp/gdpnewsrelease. htm Bureau of Economic Analysis. Gross Domestic Product Report: 2002-2006.