GDP look at US GDP components

GDP is the most important measure to understand a nation’s production. The video on circular flow makes you understand that the total income generated within an economy is equal to the total income. The United States is the world’s largest economy in real GDP terms and has one of the best statistical tools and agencies to measure its GDP. A look at the US is key to understanding how various components within an economy are measured. US national economics accounts have three major elements: NIPAs, Industry Accounts, and Financial Accounts. NIPAs (The national income and product accounts) and Industry Accounts are prepared by the Bureau of Economic Analysis, the financial accounts by the US Board of governors of the federal system.

NIPAs present the value and composition of national output and the types of incomes generated in its production. The GDP of an economy has different components income, production, consumption, investment, and savings, NIPAs capture these measures in the US. The composition of the US economy gives an excellent understanding of various components of GDP.

How is GDP Calculated ?

Image The middle Road  | Source: Concepts and Methods of the U.S. National Income and Product Accounts

Concepts and Methods of the U.S. National Income and Product Accounts, in NIPA GDP is measured in three ways: First, as the sum of value added in each stage of production, Second, the sum of goods and services sold to final users or the expenditure approach and finally, as the sum of income payments and other costs incurred in the production of goods.

The US is predominantly driven by consumption. The average consumption from 2008 to 2019 is approximately 68 percent. Personal consumption is driven by goods and services, services are the major component of personal consumption expenditure. Personal here includes households, nonprofits, private non-insured welfare funds, and private trust funds. The data is key to understanding the levers driving the US economy. After personal consumption, both gross private domestic investment and government consumption expenditure and gross investment are roughly the same. Gross private fixed investment measures additions and replacements to the stock of fixed assets including businesses and non-profit institutions. It is calculated without deduction of depreciation, intellectual property products are included under non-residential fixed investment. Change in inventories is calculated at average prices for the period. Although the US is a net importer, it’s a net importer of goods and a net exporter of services. 

Note:  Below the expenditure approach, Real GDP. Real GDP is calculated with respect to the base year price, for the US, 2012 is the base year.  Nominal GDP is calculated at current prices. Real GDP shares a better picture of goods and services sold to the users keeping inflation constant. Real GDP removes the impact of higher prices of  goods and services due to changes in the price of consumer price index. This topic will be discussed in detail in the Real Vs Nominal GDP section.

Refer to the video on circular flow of the economy under Material section.

Video: The middle Road 

Data Source: Bureau of Economic Analysis | Calculations The middle Road