Us Economy And Economic Indicators Essay Research — страница 2

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GDP, if it has risen dramatically, means that prices will skyrocket and if it falls dramatically, a recession might occur. The GDP is measured by a mathematical macroeconomic formula. The formula is GDP=C+I+G+(X-M). Prior to August 1991, the GNP was used as a nation?s economic indicator, which measured the output of goods and services by US residents anywhere in the world. However, the GDP measures a nation?s economic activity regardless of who owns the productive assets in that country. For example, the output of United States-owned companies based in Australia is considered part of Australia?s GDP rather than part of the U.S. GDP. Also, GDP is difficult to measure because every nation has its thugs that does business illegally, such as in the drug trade or people who smuggle

goods in another nation. The C in the formula above is Consumption, the most important sector in the US economy. This sector represents consumer spending, and is more than 65 percent of real, or inflation adjusted, GDP. The I is Investment, which is composed of residential (single family and multi-family housing) and nonresidential (auto factories, computers, oil rigs, etc) and change in business inventories which are either added if there is a surplus or subtracted if there is a drop. Investments take about 15% of the GDP. The G in the equation is Government Spending, which is in federal, state, or local form and it takes up approximately 20% of the GDP. Federal spending is 36% of all government expenditures and are used in entitlements such as Social Security or welfare, 45%,

defense such as in buying aircraft carriers or nuclear weapons, 18%, discretionary spending, such as NASA or FBI, 20%, and interest payments, 15%. The (X-M) stands for Net Exports because exports add to the GDP while the imports are subtracted since imports will represent another nation?s GDP. The importance of the trade sector is that it represents 13% of the total spending in the economy. The US currently has a huge deficit on goods and services, where (X-M) is negative, which totals about $150 billion. The GDP, besides measuring the output in terms of goods and services, can measure the standard of living in the world. Economists divide the GDP into the total population to get the GDP per head and convert it into dollars to compare the standard of living between two nations.

Surprisingly (to me, Daekwon the chef), nominal GDP, which is not inflation adjusted, subtracted from real GDP, which is, can be used as a secondary inflationary indicator, which is dubbed the ?chain price index?. Retail sales is also an important indicator because it takes a huge role in the GDP. It roughly takes up two-thirds of the GDP and can even predict the sentiments of the American consumer. In our laissez faire society, where the attitude of consumers are objectively analyzed by greedy capitalist gluttons, low retail sales mean less of a GDP growth, which means slower inflation, and lower interest rates. High retail sales means exactly the opposite. The Census Bureau of the Department of Commerce laboriously collects the retail sales data and analyzes it. From a random

survey of retail establishments such as Macys, Nordstrom, or Lord and Taylor?s, retail sales are broken down into two categories, durable and nondurable, with the former accounting for about 40%, and the latter 60%. Retail sales are rather difficult to forecast and the revisions are immense at times. They are highly volatile meaning that the retail sales report has a strong tendency, if not potential, to provide major surprises. The Consumer Confidence Index is an important economic indicator because it measures the level of confidence in the American consumer in each household. However, these surveys might not be reliable because times and situations of the American consumer can change dramatically. If consumers are concerned about job security, economic conditions, or personal

finances, they are prone to spend less and this can cause disinflation and even deflation. Alternatively, if consumers have a good feeling about the economy, the opposite effect will occur. The University of Michigan Sentiment Index is another name for the CCI. This index is derived monthly from a telephone survey of about 500 consumers. Michigan takes the percent of respondents that report better conditions, subtracts the percent that say conditions are worse, and adds 100. Preliminary results are released about two weeks after month-end, with final results available on the last Friday of the month. Predictions for the economic future via interpretation of economic data The CPI for April increased seven-tenths of a percent, the highest in eight and a half years. This indicates