Gross Domestic Product (GDP) — КиберПедия 

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Gross Domestic Product (GDP)

2018-01-13 131
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Gross domestic product is the sum total of all goods and services produced in an economy. As it measures the market value of all final goods and services produced by a nation, it is a fundamental indicator of an economy’s performance. It is highly correlated with personal incomes and standard of living. It can be looked at as a true measure of the value added by an economy.

What You Should Know

The calculation of GDP boils down to a sum of four items: Personal consumption plus total personal and business investment plus public or government consumption plus net exports (exports minus imports). It is thus a measure of what is consumed today (consumption) plus what is put aside for tomorrow (investment) plus our net sales to others around the world. That combined figure in turn roughly represents the income we as a nation produce from all of those activities.

Economists track both the size and the change in GDP. The U.S. GDP in 2012 was just over $14.5 trillion, but with the effects of the Great Recession, the average annual growth rate dropped from 3.2 percent (1997–2007) to an average of 0.7 percent from 2005 to 2010. More recently, it has returned to a still rather anemic 1.5 to 2 percent. GDP dropped 6.3 percent in the fourth quarter of 2008, one of the sharpest declines on record, and a true measure of the severity of the Great Recession. At that time it should be noted that other economies fared worse—Germany’s GDP went down 14.4 percent, Japan’s 15.2 percent, and Mexico’s declined by 21.5 percent in the same period. However, their base GDPs are much smaller, so the value lost in the decline was less.

The breakdown of U.S. GDP components (from 2012) is also interesting:

Personal consumption 71%
Personal and business investment 15%
Public, or government, consumption 17%
Exports 13%
Imports −16%

The good news is that exports have increased about 2 percent since 2008, while imports dropped about 1 percent (influenced in a large measure by reduced dependence on foreign oil). Also, the public/government consumption share has declined about 2 percent, signaling less reliance on that sector. But dependence on consumption still remains high, as the following figures for China will show:

Personal consumption 35%
Personal and business investment 48%
Public, or government consumption 13%
Exports 30%
Imports −26%

China, in contrast to the United States, is foregoing current consumption to build for the future, although the trade balance has shifted about 5 percent away from exports and toward imports—perhaps bad for China, but good for the rest of the world.

The GDP is also an important measure of standard of living. Economists measure GDP per capita—that is, per person in a nation. Here, the U.S. at $47,150 (World Bank figure from 2012) is on solid footing, although not at the top of the pack (twelve nations, including Norway, Denmark, Australia, and Qatar, are ahead on this measure). As well, economic wealth isn’t the only component of standard of living; the less measurable safety, health, leisure time, and climate go beyond GDP per capita as components of true living standards (though these are sometimes separated out as components of quality of living).

Why You Should Care

The GDP is the broadest measure of the country’s overall economic health, and it defines the economic “pie” you ultimately enjoy a slice of. If it is healthy and growing, times are good; if it is stagnant or declining, it will most likely affect your standard of living, sooner or later.

UNEMPLOYMENT AND UNEMPLOYMENT RATES

Most of you have a good idea of what unemployment is—especially when you don’t have a job! Economists take the same view, but add the conditions that unemployed people are not only without a job but are also available to work and are actively seeking employment. The unemployment rate is the percentage of the work force that is currently out of a job and is unable to find one, but is actively looking.

What You Should Know

Economists closely watch the unemployment rate as a signal of overall economic health. High unemployment is a sign that an economy is weak currently and will remain so. Why? Obviously, if people are losing jobs, demand is most likely falling, as are incomes and purchasing power. When people lose jobs, they can afford less, home foreclosures rise, they can save less for retirement, and their future becomes more grim in general.

Economists also recognize that there is no such thing as a true, 100 percent, full-employment economy. Some unemployment is structural; that is, created by changing job requirements—there simply aren’t as many jobs for autoworkers or office clerks these days. Some is frictional, caused by the natural changes businesses make and that people make to their lives, moving from one place to another. Some is seasonal, the result of a decline in certain jobs that are tied to particular times of the year (for example, sales clerks in retail stores during the Christmas holidays). As a result, economists suggest that an unemployment rate of about 4 percent represents “full employment.”

Why You Should Care

Obviously, when unemployment is on the rise, it suggests a reduction in business activity, which means you should be more fearful for your job as well. You should do whatever you can to make yourself more employable, including building new skills or becoming more indispensable on your job, by building expertise and credibility within your own organization. You should also develop contingency plans, including savings cushions and prospects for perhaps doing your job as an independent contractor. Long-term employment with big companies still happens, but is less the norm than ten or twenty years ago; it has become more of a “free agent” economy, and you should hold nothing back in becoming part of it. Aside from keeping an eye on the unemployment rate in order to protect your job, it’s a smart way to monitor the pulse of the economy, which will affect your investments, your company if you’re a small-business owner, and your tax revenues if you’re in the public sector.

RECESSIONS

The U.S. National Bureau of Economic Research defines a recession as a period with “a significant decline in economic activity spread across the country, lasting more than a few months, normally visible in real GDP growth, real personal income, employment (nonfarm payrolls), industrial production, and wholesale-retail sales.” During that time business profits typically decline as well. As a result, public-sector tax revenue also falls.

What You Should Know

Many call it a recession simply when a country’s GDP declines two calendar quarters in a row, or when the unemployment rate rises 1.5 percent in less than twelve months.

Technical definitions aside, perhaps Harry Truman had the best definition of a recession, and how it differs from a depression: “It’s a recession when your neighbor loses his job; it’s a depression when you lose yours.”

Recessions can be notoriously hard to forecast. For instance, how many really predicted the Great Recession, and especially its severity? When things are going well, we tend to become complacent, even optimistic, about the idea that anything can go wrong. We’ve grown accustomed to federal government intervention to prevent recessions by lowering interest rates and taking other measures to stimulate the economy (see #8 Business Cycle). Even the markets can’t tell us much; as economist Paul Samuelson famously stated: “The stock market has forecasted nine of the last five recessions.”

The National Bureau of Economic Research, the U.S. government organization generally responsible for identifying recessions, has noted ten recessions since World War II. As you can see from the table, recessions are generally short in duration—lasting less than a year—and typically happen about twice a decade.

The most recent of these, the so-called Great Recession, was also the largest since World War II, with a drop in GDP from peak to trough of 5.1 percent. By contrast, from August 1929 through March 1933, during the Great Depression, the GDP dropped 26.7 percent—hence “Depression” instead of “Recession.”

Why You Should Care

Recessions mean less for everybody, and unless you have a pile of money or are in a business largely immune to downturns, you should prepare to make adjustments when recession clouds start to gather. Warning signs include changes in the employment rate, an excess of debt, or “irrational exuberance” in some or all markets (like dot-com stocks in 2000 and real estate in 2006). You should learn to recognize when times are good, and use those times to save some money.

You should also watch to make sure your standard of living is matched to the worst, not to the best, of times. In good times, avoid allowing your lifestyle to consume all of your income, and worse, to put you into debt. If you do, you’ll have the flexibility to get through the bad times.

 


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