Growth and GDP Essay

In 2002, Heaka articulated that Macroeconomics relates to the study of the aggregate behavior of the economy and several factors influence it. Consequently, the overall health of the economy is assessed through analysis of various economic indicators. The focus of Macroeconomics revolves around three things: national output, unemployment and inflation.National output is regarded with utmost relevance in the field of macroeconomics. Moreover, it is regarded as the total goods and services a country produces or the gross domestic product (GDP). Thus, it provides a glimpse of the economic scenario at a specific time.(Foner and Garraty, 1991).In economics, “Economic growth” is a growth of potential output (Erber and Hagemann, 2002).

According to the discussion in Britannica Concise Encyclopedia (2006), the “real GDP”, wherein inflation is considered, is extensively utilized to measure an economy’s growth rate. In addition, the factors affecting GDP were also stated, these are: “capital, natural and human resources; technological advancements; status of governing institutions and trade policies”(Britannica Concise Encyclopedia, 2006).From the posted article, which cited the ESBR (Economics Statistics Briefing Room) reports, the current Economic scenario in the US is characterized by a positive GDP of 3.3%. Specifically, 1.

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1% increase in GDP from that of previous year, which takes account a 4% decrease in the corporate profits and the decline of disposable personal income (percentage) rate to -0.4.There is no other indicator in economics which is as universal as the GDP, as emphasized by Erber and Hagemann (2002), but problems in using GDP growth to measure general well being is also recognized (i.e. no provision of information on income distribution, does not take account externalities and underground economy). In spite of the limitations of GDP as a growth rate measurement, an increase is generally considered as a positive change in the “living standards” of the population.

Accordingly, a 3.3% GDP growth rate in the US reflects a positive scenario in their economy, as analyzed through the national output (among other indicators: i.e., inflation, employment).

In the posted article it was concluded that Americans are spending more today than they actually have resulting to worsening effects to the economy. That is, despite a positive GDP, a relatively low level increase of 1.1% from that of the previous year fails to meet the expectations of many.

The recent 3rd quarter report released by New America Foundation was also cited in the posted article, which supports the ESBR statements on the economic performance of US. The report emphasized that the US could have performed better, specifically, achieving much higher potential output and growth rate if not hampered by several factors. Accordingly, further explanations suggest that US underperformed its economic potentials. This was attributed to the wrong policies and wrong growth agenda pursued by the government. The US growth had become dependent on the personal consumption resulting to inflation and trade deficit. In addition, the ability to promote sustainable economic growth rate is undermined by unsustainable level of consumer debt and inadequacies in investments in public infrastructure, skills of workforce and research and development.

This scenario is reflected through the ESBR reported values: 4% decrease in the corporate profits and the decline of disposable personal income (percentage) rate to -0.4.As stated earlier, GDP includes private and public consumption, government outlays, investments and net exports which imply that in order to achieve a relatively higher growth rate these factors must very well be considered. Furthermore, according to Erber and Hagemann (2002), in contrast  to the “neo-classical growth model” of Robert Solow, economists in the 1980’s developed the “endogenous growth theory”, wherein as capital accrue the rate of growth does not decelerate. Thus, the growth rate is also dependent on the nature of investments. Therefore, policies that will be pursued must take into account the composition of GDP and the interrelationship among these factors. Thus, growth productivity in technology, labor and capital and nature of investments must be considered.Generally, it is emphasized that macroeconomy is analyzed through several economic indicators; national output is the most relevant among others such as unemployment and inflation (Heakel, 2002).

Furthermore, policies formulated by the government, both “monetary “and “fiscal”, have significant effects on the economy. With previous studies, analysis and observation of economic indicators, analysts forecast the future state of the economy. Nonetheless, even with the forecasting capabilities and potential, it must be taken into consideration that the behavior of the consumers, as well as, the economy, absolute forecasts are not assuredREFERENCES:Britannica Concise Encyclopedia. Encyclopedia Britannica, Inc. 2006. Britannica.com.

07 December 2006 ;http://www.britannica.com ;Erber, Georg  and Harald  Hagemann.

“Growth, Structural Change, and Employment “. Frontiers of Economics. Ed. Klaus F.

Zimmermann. 2002.Foner, Eric and John Garraty, eds. “Economic growth.”  The Reader’s Companion to American History. Houghton Mifflin Company. 1991. Answers.

com. 07 December 2006. <http://www.answers.com/topic/economic-growth-2>Heakel, Reem. “Macroeconomic Analysis”. Investopedia.

 4 December 2002.07 December 2006 <http://www.investopedia.com/articles/02/120402.asp> 

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