Macroeconomics: Nominal and Real GDP of US

PRINCIPLES OF MACROECONOMICS
Principles of Macroeconomics
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Table of Contents
Part 1: Expenditure Approach to Calculating GDP.........................................................................2
Part a............................................................................................................................................2
Part b............................................................................................................................................2
Report..........................................................................................................................................2
Part 2: Income Approach to Calculating GDP................................................................................5
Report..........................................................................................................................................6
References........................................................................................................................................9

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Part 1: Expenditure Approach to Calculating GDP
Part a
Table 1: Gross Domestic Product and its component
Part b
Table 2: Percentage share of different components in GDP
Report
Introduction
The report aims to discuss nominal and real GDP of United State with estimates made
using expenditure approach. The discussion includes brief explanation of different components
and its contribution to the economy.
Discussion
The accounted nominal GDP in the third quarter of 2019 was 21542.5 billion dollars. The
estimated real GDP for the same period was 19121.1. Nominal GDP of a nation expresses value

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of produced goods and services of a nation in terms of prices in current year. Real GDP on the
other hand expresses values of goods and services considering prices in a selected base year.
Since, real GDP computes values of goods and service excluding the impact of inflation real
GDP is general smaller than nominal GDP (Goodwin et al., 2015). US inflation rate in third
quarter of 2019 was 2.1 percent which is higher than the previous quarter. Because of
inflationary impact nominal GDP was larger than real GDP. Nominal GDP exceeded the real
GDP by 2421.4 billion dollars.
The four components which make up GDP are “Personal consumption expenditure”,
“Gross private domestic investment”, “Net exports of goods and services” and “Government
consumption expenditure and gross investment” (Uribe & Schmitt-Grohe, 2017). Of the four
components, “Personal consumption expenditure” makes up the largest portion of GDP with
percentage of “Personal consumption expenditure” in nominal GDP ad real GDP being 68.13%
and 76.76% respectively. The smaller portion of GDP is made up by Net export of goods and
service with share of the component in nominal and real GDP being -3.03% and -3.41%
respectively.
“Gross private domestic investment” is a representative measure that captures physical
investment used in calculating GDP to measure aggregate economic activity of a nation. This is
considered as a vital component in GDP estimation since is provides indication about future
productive capacity of an economy (Heathfield, 2015). It measures fixed investment and changes
in the private inventories. The fixed investment of a nation includes “non-residential”,
“intellectual property products” and “residential investment”. Changes in private inventories
include both farm and nonfarm inventories.