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## 11 Jun Expenditures Approach to Calculating GDP

Data exercise #1 Assignment

Consists of two parts.

Part 1: Expenditures Approach to Calculating GDP (weight 45% of the assignment grade)

BEA estimates the nation’s GDP for each year and each quarter. But new GDP statistics are released every month. Why? Because for each quarter, BEA estimates GDP three times. The advance estimate, coming about a month after the quarter’s end, is an early look based on the best information available at that time. The second estimate and third estimate each incorporate additional source data that weren’t available the month before, improving accuracy.( www.bea.gov).

BEA publishes estimates of levels at annual rates (for most series) for ease of comparisons with related and historical data. For example, in its February 2, 2004 personal income and outlays release, BEA estimated that personal income for December 2003 was \$9,335.8 billion at an annual rate. This is easily compared to BEA’s estimates of personal income for the fourth quarter of 2003 (\$9,312.6 billion, at an annual rate) and for the entire year of 2003 (\$9,187.4 billion).(www.bea.gov).

Published

January 13, 2006

Complete the following exercise

Visit the Bureau of Economic Analysis website at www.bea.gov. From the drop-down menu under “Data”, click on “by Economics Account”.

Then click on “National”> “Gross Domestic Product > and “Full Release and Tables”. (To find “Full Release and Tables” you need to scroll down the page to the section “Current Release”.

Use table 3 (Gross Domestic Product: Level and Change from Preceding Period). Tables are located at the end of the Release, so you need to scroll all the way down to the tables.

The left columns are nominal GDP (and its components) and the right half represents real GDP (chained 2012 dollars).

a) Create the table that contains the following information for the last available quarter. Please note that using the data for previous years and/or previous estimates will produce grade zero for this part of the project.

You need this information from both parts of the table 3- (nominal GDP (and its components) from left columns and real GDP (chained 2012 dollars) from the right part of the table 3). Omit the intermediate lines found in Table 3 on the web site.

· Gross domestic product

· Personal consumption expenditures

· Gross private domestic investment

· Net exports of goods and services

· Government consumption expenditures and gross investment

b) Calculate the percentage (the proportion) of each category in nominal GDP and in real GDP.

Using Nominal GDP:

[Personal consumption expenditures / Nominal GDP]*100%

[Gross private domestic investment / Nominal GDP]*100%

[Net exports of goods and services / Nominal GDP]*100%

[Government consumption expenditures and gross investment/ Nominal GDP]*100%

And using Real GDP:

[Personal consumption expenditures / Real GDP]*100%

[Gross private domestic investment / Real]*100%

[Net exports of goods and services / Real GDP]*100%

[Government consumption expenditures and gross investment/ Real GDP]*100%

Present the information that you received (a) and (b) as a table(s) in your project.

2. Write a report (2 pages double – spaced), which contains an analysis of the results you received.

In this report consider, but do not be limited to the following:

1. Why was the nominal GDP greater than the real GDP? By how much?

2. GDP is composed of a number of categories. What category makes up the largest portion of GDP? What category makes up the smallest portion of GDP?

3. What is “Gross private domestic investment”? What does gross private domestic investment measure?

4. What is “Net exports of goods and services”? Why it is negative?

5. In the left part of the table 3 (nominal GDP) find the category “National defense”. How much was the National defense for the last quarter? Calculate percentage of National defense out of “Government consumption expenditures and gross investment”. Calculate percentage of National defense out of GDP.

6. Please analyze and discuss the significance of the data that you received for this Data exercise.

7. Reflect on what you have learned from this exercise.

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