The Real Gross Domestic Product

By: Eimy Mena

The real gross domestic product, (GDP), is the monetary market value of all final goods and services produced in a country over a year. The real GDP is a useful tool because it measures economic output and allows the government and others to understand and track the economy's progress. Overall, GDP is a measure of economic growth, and well-being. The year 2020 was a difficult for the US economy. COVID-19 had a significant negative impact. The GDP was estimated to be 241.05 billion US dollars. Since March 2020, the road to economic recovery has been difficult. The economy was expected to expand significantly in 2021. In addition to the removal of restrictions, consumer spending increased, albeit slowly, as COVID-19 cases continued to occur during the first half of the year. This economic improvement was aided by the reopening of some establishments and businesses. On June 25, 2021, the U.S. Bureau of Economic Analysis (BEA) reported that GDP increased in all 50 states in the first quarter, with the U.S. economy expanding 6.4 percent after recovering from the pandemic. The economy's continued recovery aided by government responses to the COVID-19 pandemic were reflected in the second quarter. Furthermore, the rise in real GDP corresponds to an increase in the following: personal consumption expenditures (PCE); nonresidential fixed investment, which reflected increases in intellectual property; increases in the export in goods and services; and federal government spending.

Figure 1. Real Gross Domestic Product from 2019–2021.

Real GDP reflected an upward trend. According to the U.S. BEA, there was a 6.6 percent increase year over year. The increase reflected the economy's continued recovery and more people getting vaccinated, as well as government assistance payments. The increase in PCE and exports is responsible for the positive GDP growth. The third quarter saw an increase in private inventory investment, among other things. However, there was a slowdown in real GDP

when compared to the previous quarter. The reason for this slowdown was the drop in demand for motor vehicles and food services. According to the U.S. BEA, the fourth quarter saw an increase in 47 states of real GDP. The nation's real GDP increased at a 6.9 percent annual rate. Some of the highlights and reasons for this increase include a 7.1 percent increase in real estate and rental and a 12.3 percent increase in professional, scientific, and technical services nationally. The below figures illustrate the improved economic conditions as reflected by real GDP. Although the data indicates positive economic performance, real GDP has limitations when it comes to forecasting the economy's health. One of the major problems with real GDP, according to "Ecological Economics," is that it interprets every expense as a positive. Furthermore, it makes no distinction between welfare-enhancing and welfare-reducing activity. Another disadvantage of real GDP is that it was developed during the Great Depression and World War II. Furthermore, real GDP only measures market transactions. For another measure of the economy, to provide insight that possible using real GDP, it must provide measurement of improvement of the quality of life. Although there are many obstacles to replacing GDP with any other method, there is one successor that has been slowly gaining recognition among many economists: Genuine Progress Indicator (GPI). Although GDP is a measure of current output, GPI is intended to measure economic progress generated by economic activity .(Kubiszewski et al., 2013). GPI is not a perfect measurement, and it has limitations. Overall, the replacement of real GDP will be a matter of time, as will be the advancement of the GPI.

Figure 2. Real Gross Domestic Product 2018–2021. Figure from BEA.gov

REFERENCES

News release. Gross Domestic Product by State, 4th Quarter 2021 and

Year 2021 (Preliminary) | U.S. Bureau of Economic Analysis (BEA). (n.d.).

Retrieved April 23, 2022, from https://www.bea.gov/news/2022/grossdomestic-product-state-4th-quarter-2021-and-year-2021-preliminary Costanza, R., Kubiszewski, I., Giovannini, E., Lovins, H., McGlade, J., Pickett,

K. E., Ragnarsdóttir, K. V., Roberts, D., De Vogli, R., & Wilkinson, R. (2014).

Development: Time to leave GDP behind. Nature, 505(7483), 283–285. https://doi.org/10.1038/505283a Most information was taken from the official page BEA.GOV.

Eimy Mena ’22

Major: International Business Hometown: Santo Dgo, Dominican Republic