Gross Domestic Product

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This article is about the U.S.A G.D.P figures growth. The author asserts that U.S.A economy expanded in the third quarter of fiscal year 2009 after recovering from the Global Financial Crisis. According to this article increase in GDP was due to increase in government spending (G). The government spending emphasized in promoting spending on cars and house buildings. The article also asserts that manufacturing output and consumer spending has increased and thus having a positive impact on GDP. The private residential investment accounted for half of the GDP growth. The author also notes that companies had reduced their inventories due to decrease in consumer demand which contributed to nearly a full percentage point of growth. This was a bit tricky in accounting for GDP. The article also notes that government spending had also resulted into increase in inflation rate. However, the U.S.A government was in the process of bringing this down by employing monetary policies such as adjusting the interest rates.


Components of GDP discussed in the article

This article has discussed three components of G.D.P and their effects on G.D.P figure.  These are: government spending, (G) the consumptions by the household (C) and investments (I). Much of GDP growth in U.S.A for 2009 third quarter is attributed to increase in government spending. The other component of G.D.P discussed is the output from manufacturing sector which is included as part of GDP when using output approach to calculating G.D.P. The government spending increase also propelled consumptions and investment in this economy which both culminated to G.D.P growth. The government spending was aimed at making loans available to those who wanted to invest in residential buildings. The spending was also aimed at enabling households spending in cars. The author also notes that consumer demand on available goods had decreased and forced the business entities to reduce their inventories.


I agree with the writers claims that government spending has a big impact on other components of GDP borrowing from Keynesian model of national income, GDP=G+C+I+(X-M), where G represent government spending, C represent consumption by the households, I represent investments, X represents exports while M represents imports. Any increase in government spending will increase the G.D.P. Part of the government spending will also end to propel investments and household consumptions which is likely to increase the GDP further. In this case, increase of U.S.A government spending enabled investors and the households to access loans for building residential buildings and purchase cars respectively. (Wessels 2006; Shone, R (2001).

However such loans should not be included as part of G.D.P since it will culminate into double counting as this will be covered as part of government spending while calculating the GDP. The author note that a decrease in inventory may be tricky in calculating the G.D.P. Reduction in inventories will depict that there has been an increase in business income. However inventories may be part of intermediate goods used in production of the final goods. Such calculation may culminate into double counting and lead to a misleading G.D.P figures. Therefore, authors concern that inventories calculation in G.D.P figures is tricky has weight. This figure should be deducted from the GDP. The GDP calculated through output approach should only consider the finished products value produced in an economy in the specified period under consideration. (Colander 2003; Wessels 2006).