Implications of increased GDP Growth Rate in the US

Gross Domestic Product (GDP) is perhaps the most important measure of country’s economy. The statistic depicts the total value of goods and services produced in a country over a given period. GDP growth rate therefore provides valuable insights about future economic trends and performance. Over the years, the U.S. has recorded favorable economic growth rates that have seen to the country’s remarkable performance as one of the world’s major economies. This growth rate has been associated with numerous benefits such as improved standards of living, creation of employment, increased investment, generation of tax revenue and technological advancements. There are various approach used to measure and represent GDP. However, regardless of the approach used, the ultimate implication is that GDP growth is very beneficial to the economy and as such, the government should endeavor to stimulate economic growth rate at all costs.

 

Implications of increased GDP Growth Rate in the US
Gross Domestic Product (GDP) refers to the total valuation of all the producible goods and services in a country over a given duration. It is presented in two main forms, that is, current and constant dollar GDP. While constant dollar GDP converts the present information into a base dollar, current dollar GDP bases its assumption on the available existing markets and by comparing two consecutive periods. Apart from this classification, GDP can also be termed as either real or nominal. Real GDP is a percentage of a standard year, whereas nominal GDP is recorded in billion dollars. GDP generally accounts for all the purchases made by both the citizens of a country and the government. Its growth rate is therefore an invaluable indicator of the future of the U.S. economy. Growth in GDP has numerous benefits raging from improved standards of living, creation of employment, increased investment, and generation of tax revenue to technological advancements. On other hand, economic growth can also result in an increase in inflation, environmental degradation and disparity in income distribution. It should be noted that while an increase in GDP is synonymous with economic growth, it does necessarily translate to economic development due the above shortcomings (Lovrinčević, Mikulić, & Nagyszombaty, 2012). Moreover, it leads to a deficit current account when consumption becomes unsustainable.

The U.S. GDP has grown considerably over that past few years, with an all-time high GDP being recorded in 2010 at $14,526.5 billion (BEA, 2011). Nevertheless, it has also been characterized by both boom and recession. GDP growth increased substantially from 1994 to 1997, with a slight decrease in 1998 accompanied by a constant increase up to 2000. The country registered a GDP growth of 3.36% in 2001, 3.46% in 2002, 4.70% in 2003 and 6.38% in 2004. In 2006, it recorded the highest growth totaling to 6.49%. The subsequent period however recorded a lower growth rate resulting in a decline in the performance of the economy. The latter improved in 2010 when a GDP of 4.21% was recorded. According to The Economic Times (2011), the GDP growth rate in the U.S. currently ranges from 3.3% to 3.7 %. This slow growth is attributed the increasing inflation in the economy. Increasing inflation leads to reduced consumer purchasing power, which in turn causes reduced consumption expenditure.

Two methods are used to measure GDP in the U.S. They include the expenditure approach and the income approach. The income approach gives the sum of what everyone has earned within a year. It sums up the value of what firms pay to households for factors of production including wages for labor, rent for land, profits for entrepreneurship and interest for invested capital. It is therefore is directly related to economic growth, employment and general productivity. On the other hand, expenditure approach sums up what every individual has spent within a year. Economic expansion assumes that an increase in the valuation of real GDP is a clear interpretation of an improvement in the economy. GDP decrease on the other hand denotes that an economy is underperforming and not operating at the highest required capacity. Additionally, GDP evaluates the performance of the economy and determines a country’s productivity. It can also be used as a measure of standards of living.

The major sectors that contribute to GDP in the U.S. economy include the manufacturing sector (21.9%), service sector (76.9%), and agricultural sector (1.2%).  When adjusted for inflation, GDP will rebound moderately from 2.8% in 2013 to 3.1% in 2014. These figures are encouraging considering the fact that even the world’s major economies still face many structural flaws and policy constraints that hinder more investment and faster productivity growth. Moreover, the 2014 growth outlook is projected improve to 1.7% growth in 2014, compared to 1% in 2013 and the U.S. is the second largest contributor to the better expected outlook of 2014. The country’s GDP growth rate is expected to increase from 1.6% in 2013 to 2.3% in 2014. In the meantime, the outlook for the U.S. remains slightly more positive than in the recent years. Notwithstanding, the U.S. still has some way to go toward closing remaining output gaps. In this regard, a higher GDP growth would be very beneficial for the country.
References
Lovrinčević, Ž., Mikulić, D., & Nagyszombaty, A. G. (2012). Is GDP an appropriate indicator of sustainable economic development? An Enterprise Odyssey. International Conference Proceedings (pp. 207-221). Zagreb: University of Zagreb.

Data on GDP and Economic Information. (2011). Global Finance. Retrieved from http://www.gfmag.com/gdp-data-country-reports/151-the-united-states-gdp-country-report.html#axzz1s9ytNMsh

Economic expansion (GDP). (2011). Russell Investments. Retrieved from http://www.russell.com/helpingadvisors/Markets/EconomicIndicatorsDashboard/EconomicExpansion-GDP.aspx

Federal Reserve cuts US GDP forecast; no hint of more support. (2011). The Economic Times. Retrieved from http://economictimes.indiatimes.com/news/international-business/federal-reserve-cuts-us-gdp-forecast-no-hint-of-more-support/articleshow/8956240.cms

 

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