Two weeks ago, the U.S. Government’s Commerce Department reported that the country’s 2nd quarter (April-June 2015) Gross Domestic Product or GDP grew at a 3.9% annualized rate over the first quarter (January-March 2015). This was great news as the U.S. historical rate of annualized GDP growth is 3.2%.
GDP reports are of special interest to countries since they provide an important macroeconomic measurement of how much an economy's goods and services supply has grown, or recessed, compared to the prior three calendar months. GDP is considered the most important macroeconomic measurement to most economists as it measures the goods & services produced for its citizens.
GDP reports are of special interest to countries since they provide an important macroeconomic measurement of how much an economy's goods and services supply has grown, or recessed, compared to the prior three calendar months. GDP is considered the most important macroeconomic measurement to most economists as it measures the goods & services produced for its citizens.
Let me try to make the measurement of GDP easy to understand and learn why it is considered the most important macroeconomic measurement of any nation.
GDP is simply a calculation that measures the market value (final price) of all the final goods and services produced within the borders of our country, whether or not those goods and services were produced by an American or a foreign company. Thus, U.S. GDP includes Toyotas produced in Alabama. but the calculation excludes Cadillac’s made in Canada. GDP includes all U.S. exports (goods sold to other nations) since they were produced in the U.S. but the GDP calculation excludes all U.S. imports since imports, by definition, are produced in another country.
If you think about it, ultimately our country's economic satisfaction is best measured by the goods and services that are produced and that we, as citizens, have access to, which is why GDP is the measurement that is synonymous with “economic growth” or growth in goods and services for its citizens. In addition, rising GDP (more goods and services) is the ultimate economic goal of any economy, which can best be accomplished through the means of two other key macroeconomic measurements of employment and productivity, which are not the subject of this particular blog.
Let’s describe how the GDP calculation is made. Each quarter, the Government (Commerce Department) compares the final value of the domestic goods produced and services rendered in the current quarter to the final value of the goods produced and services rendered in the previous quarter. The calculation then takes the quarter-over-quarter percentage gain and annualizes the percentage by essentially multiplying by 4. The percentage growth comparison is always restated for inflation so that the production figures are comparable from one period to the next and are not impacted by changing price levels. For economic purists, we call this “real GDP” which is the only GDP reported by the media, even though the word “real” is almost always dropped to avoid confusion with the average citizen. For example, the second quarter 2015 U.S. GDP report included a 3.9% estimated GDP annualized growth rate. This means that the second quarter final value of goods and services produced was approximately .9% higher than the first quarter value. If we annualize the quarter over quarter growth that would mean we are growing at a 3.9% annual growth.
Now let me get to my favorite point on GDP, which most citizens do not understand. GDP growth in goods and services value is precisely the same as income growth! For example, in the second quarter of 2015 we can also say that incomes for Americans grew by 3.9% on an annualized basis, restated for inflation. Said another way, our country’s purchasing power grew by 3.9%, which represents the income growth to purchase the increasing 3.9% increase in goods and services. You probably never thought about it this way but every time you purchase something, every dollar you spend is going to someone as income, whether it is to the workers as wages, the landlords as rent, a bank that has made a loan as interest income, or to the owners of the business as profits. In short, Real GDP = Real Income and the only question is how that real income is dispersed among owners (profits), workers (employee wages), lenders (interest), and lessors (rent). Many citizens are unaware that the Government calculates GDP both in terms of the final market value of the goods and services PRODUCED under the “expenditure method”, which is the version that the media uses which focuses on what goods and services are produced and purchased, as well as a GDP calculation version called the “income method”, which focuses on the REAL INCOME (gains in purchasing power) earned from that same production.
I find the preceding paragraph, GDP = Income, to be a breakthrough moment for a citizen, or a first time economic student, in truly understanding the value of the GDP measurement. It is easier for most to think in terms of percentage growth in income in lieu of a fuzzier wording like GDP percentage growth.
The final point of caution is that the real GDP or income growth rate is a collective U.S. average, thus the growth in GDP or incomes does not indicate how those real income gains are accruing to the various socioeconomic classes or professions. Over the past 15 years, most of the gains in GDP or real income is accruing to the educated resulting in higher income inequality. Said another way, and using the 3.9% real GDP report, most of the 3.9% increase in incomes is going to the educated and skilled workers and to the owners (entrepreneurs)! As discussed in my last blog posting, over the last 15 years the real income gains of the middle class have stalled and have even slightly declined as global labor competition and technology have combined to "put a lid" on their real income growth.
The final point of caution is that the real GDP or income growth rate is a collective U.S. average, thus the growth in GDP or incomes does not indicate how those real income gains are accruing to the various socioeconomic classes or professions. Over the past 15 years, most of the gains in GDP or real income is accruing to the educated resulting in higher income inequality. Said another way, and using the 3.9% real GDP report, most of the 3.9% increase in incomes is going to the educated and skilled workers and to the owners (entrepreneurs)! As discussed in my last blog posting, over the last 15 years the real income gains of the middle class have stalled and have even slightly declined as global labor competition and technology have combined to "put a lid" on their real income growth.
Discussion Questions:
1. What is real GDP?
1. What is real GDP?
2. Why does Real GDP = Real Income?
3. Which four groups earn the income generated by the production of goods and services?
4. Many analyses show that our nation's middle class have made virtually no real income gains over the last 15 years. How could this be so if GDP = Income and our real GDP has been growing over the last 15 years?
6. Describe three things you would try to do as President to increase Real GDP (economic growth).
1. Real GDP is what is reported to the media. The Commerce Department of the government calculates it by comparing the final value of domestic goods and services from the current quarter (3 months) to that of the previous quarter. They then take the quarter-over-quarter percentage gain and multiply by 4, making it annual instead of a quarter. It is then restated to allow for inflation.
ReplyDelete2. Real GDP is equal to Real income because every dollar we spend is a form of income to someone else. A nation’s income at a certain purchasing power buys the goods and services that value GDP. GDP can also be calculated using income or by using expenditures.
3. The four groups that earn the income generated by the production of goods and services are owners, workers, lenders, and lessors.
4. The middle class has made almost no income gains over the past 15 years due to increases in technology. The middle class has stagnated, while the upper class’s incomes have increased drastically. The real GDP shows an increase because of the upper class; the educated and the skilled. This raises the real GDP.
5. The most important determinants of real GDP growth are similar to the determinants for supply. Some include: technology, change in the number of workers, change in education, income, land, capital, natural resources, taxes, and international trade (allowing specialization).
6. As President I would try and increase GDP by providing subsidies to companies involving the gathering of natural resources. This would include those developing technology to become more efficient in finding and collecting them. More natural resources would mean more possibilities for products, allowing more jobs, and a higher income (hypothetically). I would also provide tax cuts/subsidies for education. I would start programs to encourage a higher level of education throughout our country. I would want the public school system to be held to a higher standard, pushing our students to be the best they can possibly be. I would also lower taxes on certain goods. This would allow the sale and production of these goods to rise, allowing more jobs and more income, raising the GDP.
1. Real GDP, stands for gross domestic product, and is the GDP that we see and hear about in the news. GDP is the measure of the final value of all goods produced and services produced within the borders of our country. Real GDP is adjusted for inflation or deflation so the percentage growth comparison is not affected by changing prices.
ReplyDelete2. Real GDP is equal to Real Income because when someone purchases an item, that money spent becomes an income for another person. Purchasing power is increased thus spending and income is increased.
3. The four groups that earn income generated by the production of goods and services are owners (profits), workers (employee wages), lenders (interest), and lessors (rent).
4. Our nation’s middle class have made virtually no real income gains over the past 15 years because labor competition has rose and technology has taken over their jobs. Our GDP has been growing even with our middle class in this state because the increases in income is going to educated and skilled workers and to the entrepreneurs. This means that the middle class is seeing no income gains, while the upper class is getting all the increases in income.
5. The most important determinants of real GDP growth are the population of the workforce, higher quality education for workers, quantity of resources, and advancement in technology.
6.If I were president one thing that I would do to increase real GDP is make education more affordable and attainable. It is proven that workers that have a higher education have a higher income, so it is only fair that everyone has the same opportunity for education. The second thing that I would do to increase real GDP would be to have more government subsidies for innovators. Having these subsidies would encourage more people to invent new technology thus increasing economic growth. The third thing that I would do as president to increase GDP would be to create a lot of jobs for the unskilled workers to allow them to contribute to the economic growth of our nation.
1. Real GDP is the final measurement of the value of the goods and services produced in the United States in a quarter. It is the only GDP reported by the news media. GDP stands for Gross Domestic Product, which is the most important macroeconomic measurement for economic growth.
ReplyDelete2. Real GDP equals Real Income because economic growth allows for more purchasing of goods and services. More goods and services means more spending, meaning more income for those selling those goods and services. Increasing GDP means increasing spending power for the population of a country, promoting economic growth.
3. The four groups that earn income generated by GDP are: owners, workers, lenders, and lessors.
4. The middle class of this nation saw no real income increase over the past 15 years because of advancement in technology. Global labor competition in other countries also contributes to the lack of growth. The two new factors have "put a lid" on the middle-class's real income growth. Most of the income growth is going to highly skilled workers and business owners.
5. The most important aspect of real GDP growth is how the people are themselves. A more productive and efficient society will be able to produce more and better goods and services, thus increasing GDP, and increasing income growth. Higher education, population size, availability of resources, and advances in production technology can be factors in assisting real income growth.
6. As President of the United States, I would do everything in my power to ensure the solid and stable growth of my nation's economy. I would do this by enabling more people to acquire the skills needed to make a more productive society. Offering higher education, as well as teaching important and demanded skills to the general population would allow those people to work more efficiently. I would encourage entrepreneurs to rise and establish their own businesses, which would stimulate the economy by selling and exporting more goods and services. Finally, I would invest in research that would result in more efficient manufacturing methods. The more efficient our production lines are, the more goods and services we can provide to those willing to buy them. More supply results in more availability in sales, increasing income, thus increasing real GDP and promoting economic growth.
Real GDP stands for Gross Domestic Product, this means that any final product produced is counted for in dollar values. These product determine the inflation or deflation of the country's currency. Each product made in a business is determined quarterly.
ReplyDeleteGDP and/or income growth rate is a collective U.S average. This does not indicate how real income gains are accrued. Since they are the same, every dollar value comes from someone else's income. Every new product sold is given to GDP and to someone else's income, a product cannot be resold for it to enter back into GDP.
The income that is generated by the production of goods and services goes to four different groups, owners, workers, landlords, and renters.
Even though the income and GDP are rising it doesn't mean that the income for middle class will rise higher than the rest. The highly skilled and the educated have received income gains unlike the middle class.
I think the most important determinates in GDP growth are technological advances, highly educated labor, consumer consumption and spending.
As president i believe that creating a system where increasing better education so that we could have a labor force that is highly trained would be sufficient in GDP. I would also encourage business to invest in better technology and help the technology business’ to create better tech. As president i would also look at the gap between the middle class and the upper class. With less of a gap the GDP would rise and and income would rise for the middle class.
1. Real GDP is simply GDP adjusted for inflation. GDP measures the dollar value of all the goods and services produced within a country in a year. Real GDP is a more useful measurement than nominal GDP because it accounts for the changing value of a dollar over time. Real GDP is often reported as a percentage growth.
ReplyDelete2. Real GDP is the same as real income because the expenditures used in the calculation of GDP are income to the people receiving them. If a consumer spends $1 on a good, then the supplier will gain an income of $1. Income can be in the form of wages, rent, interest payments, or profits.
3. Workers earn part of the income in the form of wages. Lenders earn part of the income in the form of interest. Business owners earn part of the income in the form of profits. Finally, lessors earn part of the income in the form of rent.
4. The growth in GDP has not been distributed equally. Most of the gains in GDP are going to the more educated workers and to the owners. The growth in the real income of the middle class has been hindered by increased competition and technology.
5. The most important determinants of GDP growth are increases in the quality and quantity of production resources. These grow the economy and will shift the PPC to the right.
6. First, I would try to reduce government-imposed barriers to production so businesses would not have as much incentive to outsource jobs. Outsourced production is by definition not made in the US, so if these were brought back into the US, they would boost GDP. Second, I would lower taxes in the hopes that this would encourage people to enter into business and invest more, boosting GDP. Finally, I would redirect government spending from welfare and social security to research and development. This would hopefully boost GDP in two ways: it would increase government purchases and result in the discovery of better resources.
1. Real GDP is GDP that is adjusted for inflation. If we measured the amount of product that we produced each year in the current dollar value it would differ majorly as the value of the dollar has not stayed consistent over the years. We would see a much high percentage increase which would not accurately represent our growth. To avoid this economists adjust the GDP based on inflation levels so that we can compare our growth over the years without any confusion.
ReplyDelete2. Real GDP equals Real Income because every dollar than an American spends on a product turns into someone else’s income. The only way to get income is too have a job of some sort so you are producing a good or service thus adding to the GDP and the Income.
3. The four groups that receive the income that is generated by the production of goods and services are the owners get profits; the workers who are paid wages; lenders who earn interest and landlords who get money from rent.
4. While GDP has increased it does not mean that the benefits have been equally distributed to everyone in the country. Income growth often is received by higher class and educated citizens who have higher paying jobs. Also companies are the ones who receive a lot of the increased income and they then re-invest this into their own company to make it better. This means that the lower and middle income households are left behind with their normal income and this is why they haven’t made any serious economic gains. This is all due to the uneven distribution of the growing incomes.
5. Some of the most important determinants of GDP are things like production technology as this affects what and how efficiently a country can produce certain items. Land, Labor and Capital are all things that can affect the GDP of a country. The quantity and quality of these items is very important and affects how much a country can produce. Global trade and specialization also affect the GDP of a country as if they utilize trade efficiently then they can export goods to make more money and thus increase their GDP.
6. As President one of my main goals would be to increase the education of the people so that they are more capable to get a higher paying job and to be more productive than they may have been before. This will help to increase the country’s GDP and it will help to improve the living standards of low and middle income families. Education will not only increase productivity but it could help to nurture creativity and make new entrepreneurs who could create new products which would further boost the GDP.
I would also increase trade between the USA and other countries around the world. In addition to other countries coming to us to meet their needs, we would also go to countries less economically developed and see what they are in need of and if we can produce that in a way where a profit is still profitable. This will increase our trade and thus GDP and allow us to help countries that are not as developed as much.
I would also try to attract foreign workers so that our work force could be increased and that we could receive new talent that may be undiscovered. This could create new entrepreneurs and increase our work force thus increasing our production and consequently our GDP.
1. The real GDP is the GDP that we hear on financial networks and websites. The “Real” GDP is accommodating inflation and is the actual value of all the US goods and services at that point in time. GDP is short for Gross Domestic Product.
ReplyDelete2. GDP not only measures expenditures, but also income. Every Time an American purchases a product, it transfers that income to selling party and adds to the GDP. Since it is a measure of the buying power of an entire nation, Real income would equal real GDP.
3. The four groups that receive income from goods and services are the workers themselves, banks, business owners, and landlords.
4.There has been no income gains for the middle class because the educated working force has become so advanced; this just means that those receiving an education continue to climb higher up the income ladder. The higher the educated workforce gets paid, the higher the average becomes, leaving uneducated workers in the dust.
5. The most important determinants of GDP are technology, change in the number of workers, change in the education level of the workforce, taxes, natural resources, and international trade. This is very similar to the determinants of the supply curve.
6. The biggest thing I could do if I was president would be improve education in America.If you payed teachers like doctors and you would see an exponential growth in the quality of the workforce. I would not make it easier to go to college; as that defeats the purpose of improving education, rather I would improve the quality of instruction. Also, I would probably subsidies companies that pursue and develop new methods of energy, created more jobs in that field and helping the environment at the same time. Finally, I would probably look to cut unemployment to as little as possible, doing so through public work programs and better access to trade schools.
1. Real GDP is the GDP whose percentage is adjusted so it can compare to the previous quarter. It takes the the previous quarter over the current quarter and multiplies by 4. This is the primary GDP that is reported.
ReplyDelete2. Real GDP is also Real Income because our GDP is also our purchasing power. As our GDP goes up, it means that we purchased more goods. In order for us to have purchased more goods, our wages had to of gone up.
3. There are 4 groups that receive the income. The Owners, the Workers, the Lenders, and the Landlords.
4. The reason the Middle class has stalled, is because most of the income gains have gone to educated and skilled workers.
5. Some big factors for GDP include our technology, the size of our workforce, the level of our workers, and the resources available to us for products.
6. If I was president, I would give tax breaks to the larger corporations so they can pay high wages and make more products. I would also make schooling more affordable. I would also give tax breaks to corporations and universities that create new and advanced Technologies, so they can further advance our GDP.
1. Real GDP is the percentage of the GDP, which is later adjusted to compare it with previous quarter’s GDP's. The percentage is then multiplied by 4 and the percentage is always restated for inflation so the figures are comparable from one period to the next.
ReplyDelete2. Real GDP equals Real Income because every time a person spends a dollar, that dollar goes to someone else’s income, whether it be wages, rent, interest, or profits.
3. The four groups who receive income generated by the production of goods and services are workers, landlords, banks, and business owners.
4. The reason our nation’s middle class has made virtually no real income gains in the past 15 years is because the educated and higher skilled workers are receiving a higher income, thus overshadowing the middle class. These are the people who have a higher income, not the middle class.
5. The most important determinants of GDP growth are increases in resources, increases in workers, increase in education workers, increase in international trade, and advances in technology
6. If I were president, I would make sure everyone was able to get a higher education. This would increase each person’s income, could lead to technological advances, and would create a higher quality workforce. All of these would increase the nation’s GDP.
1. When compared to the figures of the previous quarter, Real GDP is adjusted by inflation.This is the only type of GDP released by the media.
ReplyDelete2. Real GDP equals Real income because of relationship between buyers and services leads to an appreciation (or if lack of, depreciation) of the dollar. Every time that person utilizes the dollar to make a purchase, it contributes to the economy.
3. The four groups are : workers, landlords, owners, renters.
4. The growing GDP does not necessarily apply to a stronger middle class- as income rises, prices for goods and services also rise. As the blog post states, new technology and the increasing skill in workers has contributed to a much larger economically competitive nature.
5. The most important determinants of real GDP growth include: advances in technology, change in number and skill level of labor, and the quality/quantity of resources (natural).
6. In current society, many people (especially the middle class) find being in an "economical and income rut" is a major issue. By this I mean, many people believe that they are stuck in their current state- no matter how hard they work, they have to pay the same bills, receive the same income, and pay the same taxes. I understand the frustration- but I do not see a world where everyone can be rich and successful. However, what we can do, is increase the levels of innovation in our country, a step that would surely benefit those who wish to utilize their minds to become more successful. Another big factor in the growing economy of America is education. There are hundreds of thousands of bright minds in the United States who cannot afford the type of education they deserve. If we make education more accessible, the future payoff would be invaluable to our society.
1. Real GDP stands for Gross Domestic Product, it is the measure of of one time period of GDP compared to a previous time period.
ReplyDelete2. When we buy products it increases people's Real Income. The Real Income has a direct relation with Real GDP. GDP measures income and expenditures and it increases the spending power of a country.
3. Banks, Bussiness Owners, workers, and landowners are the four groups that earn the income generated by the production of goods and services.
4. The amount of highly educated workers has increased dramatically and people tend to hire those who are more educated and skilled becasue they often do the job better than a non-educated worker. These non-educated workers make up the middle class which is why they have made virtually no income gains in the last 15 years.
5. The quality and quantity of natural resources, amount of educated workers, and increases in technology are the most important determinants of real GDP growth.
6. If I were president and I wanted to increase real GDP I would try to increase the educated work force, put more emphasis on the field of technology to increase efficiency and have more international trade.
1. The Real GDP of a nation is the worth of goods and services provided and purchased within the nation over a specific length of time.
ReplyDelete2. Real GDP is dependent on Real Income because the things that are purchased that make up the GDP must be bought, and you cannot buy things without income. Therefore, the increase in GDP is directly linked to the increase of income because you need an increase in income for any increases in GDP because without the increase in income the people could not purchase anything more.
3. The four groups that earn the income generated by the production of goods and services are the workers, the banks, businesses, and landlords.
4. The income may be in the upper classes and lower classes; the Real Income doesn’t necessarily have to be equal across all the classes. Also, it could mean that the middle class is expanding.
5. The most important determinants of real GDP growth are population of the work force, education of the work force, the amount of resources available to build goods and provide the services that make up the GDP, and advancements in technology.
6. If I were the president and I needed to increase the GDP I would try to create more jobs to increase the workforce, focus on reducing the taxes imposed on the people to take less of their wages so that they can spend that money on goods and services, shuffle some money within the government to increase the money available to the U.S. Education system so help educate the workforce more, and probably provide a few extra government subsidies to companies to lower the prices of the goods and services to hopefully lower the price and assist the people in purchasing the goods and services that affect GDP.
1. The Real GDP is the value of the goods and services in the country as estimated by the Federal Commerce Department.
ReplyDelete2. Real GDP=Real Income because every dollar spent is going to a business or person as income, profit, or interest that they will be able to spend.
3. The 4 groups who earn the money are owners, workers, lessors, and lenders.
4. Although the middle class may not be making gains, the upper class has been making great gains causing the income gap has been increasing.
5. The most important determinants of GDP are unemployment, technology, and resources; these are the main determinants of the production possibilities curve as well as important determinants of GDP.
6. If I was President in order to increase the GDP I would do a few things. Firstly, I would decrease the subsidies on unemployment, and then I would take some of the money that was being used to subsidize unemployment to subsidize technology growth. Lastly, I would do my best to encourage new businesses.