Impacts of Economic Crisis on GDP: Case Study of US

IMPACTS OF ECONOMIC CRISIS ON GDP, CASE STUDY OF US
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INTRODUCTION
Gross Domestic Product
• In its basic definition, the GDP of a country is its monetary value for all its finished goods and services and which are locally produced over
a certain period of time
• It’s mainly calculated on annual basis although some countries like the United States have opted to do it on a quarterly basis (Dubé,
Hitsch & Rossi, 2018)
• The GDP of a country is calculated by summing personal consumption expenditures, investments, net exports (exports-imports) and the
government expenditure.
• Basically these are the four major components of the GDP (Consumer expenditure+ Investments + Net exports+ Government expenditure)
• The four components are used to formulate the GDP equation which is expressed as: GDP = C + G + I + NX

The Components of GDP
Private Consumption Expenditure (Dubé, Hitsch & Rossi, 2018)
• Private consumption expenditure is the measure of money value which entails both the consumer goods and services purchased by the households and non-profit
organizations during a certain period of time.
• These goods are classified into durables, non-durables, semi-durables, and services
• Private consumption expenditure is estimated through taking into account all the durable goods owned by the citizens like autos and furniture as well as the non-
durable goods like food, fuel and clothing
• Controversy arises when it comes to evaluating the reliability of the value obtained
• Citizens rarely disclose the true value of their possessions and that is an implication of wrong values of PCE obtained.

The Components of GDP
Investments (Dubé, Hitsch & Rossi, 2018)
• Gross investments are the purchases made by companies in the production of consumer goods.
• And not all purchases are included in the calculation of GDP
• Purchases which are made to replace existing items which might have spoiled or damaged are not included in the GDP
calculation
• The only purchases which are counted or included in GDP calculation are those which creates new consumer goods
• The main controversy when incorporating investments into the GDP calculation arises when choosing the purchases to be included into the equation.