Week 2 Discussion 1&2 Responses

Week 2 - Discussion Forum 1

Guided Response: Respond to at least two of your fellow students’ and your instructor’s posts in a substantive manner and provide information or concepts that they may not have considered. Each response should have a minimum of 100 words. Support your position by using information from the week’s readings. You are encouraged to post your required replies earlier in the week to promote more meaningful and interactive discourse in this discussion forum.

On this Document there two classmates with discussion that needs to be response. Kivette Ball and Britney Graves

Kivette Ball

GDP is known as Gross Domestic Product, and it is the measure of a country’s economic activities that is all the finished goods and services it produces in a specified amount of time. It usually measures all the public and private consumption's within the country, the investments that are made in the country, the cost of the paid-in construction, the foreign trade balance whereby the exports are usually added, and the imports are subtracted, government outlays and the private inventories. All these are supposed to be done in a specified period. However, GDP is not used to measure wealth. According to Duffin (2020), the U.S. GDP increased by 2.1 percent from the third quarter of 2019 to the fourth quarter of 2019. Overall, the US GDP increased by 2.3 percent in 2019 (para. 1). This has been the same as the second quarter and also the fourth quarters.

GDP is very important, and that is why it is often mentioned in the business news. It usually shed light on the size of the country's economy and how the economy is doing either good or poor. It an indicator of the health of a country’s economy. There are some pros and cons of GDP. One of the pros is its simplicity. It breaks the economy to a singular number. Thus showing using a figure how much the economy is producing. Also, it is an indicator of how the economy is performing. One of the cons of GDP is that it is an unclear indicator because it usually indicates consumption but does not differentiate between high and low consumption. Also, it can be inaccurate, given it takes to consider only the reported consumption. GDP is very real, given that is what economists use to determine the health of the economy, and it is what investors check before they decide to invest in a country. Gwartney et al., (2018) reveals There are two methods of calculating GDP. It can be calculated either by summing the expenditures on the “final-user” goods and services purchased by consumers, investors, governments, and foreigners (net exports) or by summing the income payments and direct cost items that accompany the production of goods and services (Ch. 7, 7-2). To give  deeper insight, it is usually adjusted for the population and inflation. The formula is GDP=Consumption(c) + Government spending (G) + Investments (I) =Net exports (NX).

 

Duffin, E. (2020). U.S.: real GDP growth by quarter 2011-2019 | Statista. Statista.    https://www.statista.com/statistics/188185/percent-chance-from-preceding-period-in-real-gdp-in-the-us/ (Links to an external site.).

Gwartney, J. A., Stroup, R. L., Sobel, R. L., & Macpherson, D. A. (2018). Macroeconomics: Private and public choice (16th ed.). https://www.cengage.com

Britney Graves

Gross domestic product (GDP) is the total amount of money that has been collected from products made in a country during a set period.  GDP is a common way for an economist to understand if the economy is growing or hurting.

While GDP can be helpful, it’s essential to understand what outputs are measured.  As consumers, we buy products and don’t realize the various stages it goes through to end up in our hands.  With that said, when a good flows through multiple stages before completion its called “intermediate goods” and shouldn’t be counted in GDP.  (Gwartney, Stroup, Sobel & Macpherson, 2018) explains that “final market goods and services—those purchased for final use rather than for resale or further processing” (p. 7-1a).  Final market goods are the only goods that should be counted to evaluate GDP because the intermediate good is eventually going to turn into final goods.  At this point, counting both types of goods would lead to a double count and will cause serve miscalculation of the economy.  The expenditure approach is one way to measure the GDP and can be done by totaling the expenditures on goods and services produced within one year. Also, GDP can be totaled by adding the income payments to the cost of the resources that contributed to making the good, which is called the resource cost-income approach.

 In the graph below, you can see, the 2019 Q1 was 3.1%, Q2 was 2%, and Q3 and Q4 are 2.1%.  Therefore our economy has increased by 2.1 percent in Q4.

Regardless of the business, the economy has a direct impact on business outcomes.  As we know, the GDP is an indicator of the economy’s current and future performance.  Therefore, GDP is mentioned so often in business news because it gives confidence to investors as to if they should or shouldn’t invest in a company.  For example, if the economy is booming and the firm is hiring more people to keep up with demands, then investments will be a good idea.  On the other hand, if a company is barely keeping its head above water and the economy is in a recession, then investing may scare off some people.  In a sense, GDP is used as a metric for our economy because it’s a trust system that can be used to shed light on the future of our economy. “GDP is an accurate indication of an economy’s size.  The GDP growth rate is probably the single best indicator of economic growth” (Picardo, 2019, p. 1).  However, that doesn’t mean it’s 100 percent right all the time.  There are some transactions that the government can’t track like black-market purchases or a child getting paid for mowing their neighbor’s lawn.  Therefore, if the purchase can’t be tracked, it can’t be counted towards GDP.  While GDP might be the best way to track our economy, it’s essential to take those numbers with a grain of salt.  With that said, there are other benefits and disadvantages of GDP.  The most beneficial thing about GDP is it provides insight into our economy; if things are on the decline, then the government can chime in and try to correct the recession before it gets too bad.  On the other hand, GDP doesn’t account for harmful impacts like pollution that companies have on our world when they create a good that goes to an end-user.  Therefore, GDP isn’t painting the entire picture, only a glimpse.

Unlike GDP, real GDP accounts for changes in price like inflation or deflation; therefore, it provides a better look at economic growth.  Our textbook describes a situation of a 24.4% increase in the U.S from 2009-2015.  GDP would have assumed this was solely because of real output; however, a large portion of this increase was due to inflation.  To find real GDP, you divide the GDP from 2009 by the GDP of 2015 and multiple by nominal GDP, which is the current market price for a good.

References

Duffin, E. (2020, March 26). U.S.: real GDP growth by quarter 2011-2019. Retrieved April 14, 2020, from https://www.statista.com/statistics/188185/percent-chance-from-preceding-period-in-real-gdp-in-the-us/ (Links to an external site.)

Gwartney, J. A., Stroup, R. L., Sobel, R. L., & Macpherson, D. A. (2018). Macroeconomics: Private and public choice (16th ed.). Retrieved from https://www.cengage.com

Picardo, E. (2020, February 5). The Importance of the GDP. Retrieved April 14, 2020, from https://www.investopedia.com/articles/investing/121213/gdp-and-its-importance.asp

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