III quarter IV quarter I quarter II quarter 1 Gross domestic product 16,356.0 16,420.3 16,535.3 16,661.0 2 Personal consumption expenditures 11,193.6 11,285.5 11,379.2 11,427.1 3 Gross private domestic investment 2,493.3 2,499.9 2,555.1 2,621.0 4 Net exports of goods and services -524.4 -515.8 -523.1 -509.0 5
Government consumption expenditures and gross investment 3,193.5 3,150.7 3,124.1 3,121.9
Table 2. Real Gross Domestic Product (in Billions of chained dollars) Real Gross Domestic Product (real GDP) is a macroeconomic measure of the value of economic output adjusted for price changes.
III quarter IV quarter I quarter II quarter 1 Gross domestic product 15,534.0 15,539.6 15,583.9 15,679.7 2 Personal consumption expenditures 10,541.0 10,584.8 10,644.0 10,691.9 3 Gross private domestic investment 2,456.5 2,441.8 2,470.1 2,524.9 4 Net exports of goods and services -436.5 -412.1 -422.3 -424.4 5 Government consumption expenditures and gross investment 2,988.8 2,938.8 2,907.4 2,904.5
During the inflation the nominal GDP is higher than real GDP, because real values are adjusted for inflation, while nominal values are not. The real GDP is adjusted by dividing the nominal GDP by a price deflator, which we can find by dividing the nominal GDP by the real. According to results I received, the nominal GDP was greater than nominal GDP in each four quarters, because there was an inflation factor that influenced the real GDP. I counted the Implicit Price Deflator and found that it equals 1,05% in the third quarter of 2012, 1,06% in the fourth quarter of 2012, 1,06% in the first of 2013, 1,06% in the second of 2013. The nominal GDP was increasing during these for quarters. This caused by changing of real output and price level. The USA import exceeds export, so U.S. imported more goods and services than exported during this period of time. I think that United States will increase export of the country or increase import because according to the III quarter of 2012 and the II of 2013 we can see that the difference between export and import was going in both nominal and real GDP to the positive side.
Part 2: Income Approach to Calculating GDP
III quarter IV quarter I quarter II quarter 1 Gross domestic product 16,356.0 16,420.3 16,535.3 16,661.0 2 Gross National Product 16,603.7 16,677.3 16,772.7 16,907.9 3 Net National Product 14,048.5 14,102.3 14,168.9 14,276.0 4 National Income 13,962.1 14,204.0 14,324.5 14,438.5 5
Personal Income 13,701.6 14,073.1 13,925.9 14,065.0
The difference between GNP (Gross National Product) and GDP (Gross Domestic Product) is that GNP includes net foreign income rather than net export and imports. GNP adds net foreign investment income. GDP measures the nation’s economy’s performance because it is determined by the market value of all final goods and services made within the borders of the nation. GDP is focused on output rather than who produced it, GDP measures all domestic production. GDP (Gross Domestic Product) = C + I + G + (X – M)
GNP is focused on who owns the production regardless of where the production takes place. GNP calculates the value of output produced by the people of the region. GNP is basically the GDP of the country plus income earned from overseas investments by residents, minus income earned within the domestic economy by overseas residents. National income measures the money value of the flow of output of goods and services produced within an economy over a period of time. It also includes income acquired from business done abroad. The national income is used to determine the overall economic health of the country, trends in economic growth, various production sector contributions, future growth and standard of living. National income is used to measure level and economic growth of a country. This year the Gross National Product is higher than National Income. The GNP has made 16,907.9 and NI has 14,438.5. The main component of national income was compensation of employees. It is estimated that compensation of employees takes up about 55% of national income and includes salaries and fringe benefits. National Income = G.D.P. + Net Domestic Income from Abroad.
National income from GNP = Wages + Interest + Rent + Profit + Proprietors’ Income
Part 3: GDP in Different Countries Country GDP (in millions of U.S. dollars) Population (in thousands) Per Capita GDP (in thousands of U.S. dollars) 1 2 3 4 = 2/3 United States 15,684,800 313,910 49,965 Japan 5,959,720 127,560 46,72 China 8,358,360 1,350,700 6,188 Mexico 1,177,960 120,850 9,747 Russian Federation 2,014,780 143,530 14,037 Switzerland 632,190 8,000 79,023 Sweden 525,740 9,520 55,224 Luxembourg 57,120 0,530 107,773
Looking at this table we can see that the highest per capita GDP is in Luxembourg. Although the country has the lowest population and GDP, it’s actually one of the richest countries in the world. China has the lowest Per Capita and it’s not because of low GDP, it is because of high population. List of the countries by highest per capita GDP to lowest: Luxembourg, Switzerland, Sweden, United States, Japan, Russian Federation, Mexico, China. Order by highest GDP to lowest is US, China, Japan, Russia, Mexico, Switzerland, Sweden, Luxembourg. These lists are not the same because population is defining indicator. The more people live in a country, the higher GDP should be, but this rule is not observed by all countries.
Part 4: Index of Economic Freedom Economic freedom is the fundamental right of every human to control his or her own labor and property. In an economically free society, individuals are free to work, produce, consume, and invest in any way they please, with that freedom both protected by the state and unconstrained by the state. In economically free societies, governments allow labor, capital and goods to move freely, and refrain from coercion or constraint of liberty beyond the extent necessary to protect and maintain liberty itself.
1. Find the rank in economic freedom (overall) of the countries listed on the table in part III of the assignment. Country Economic freedom (overall) United states 76.0 Japan 71.8 China 51.9 Mexico 67.0 Russian federation 51.1 Switzerland 81.0 Sweden 72.9 Luxembourg 74.2
2. Find the rank in business, trade, financial freedom, and property rights of the countries listed on Country Business freedom Trade freedom Financial freedom Property rights United states 90.5 86.4 70.0 85.0 Japan 81.3 81.8 50.0 80.0 China 48.0 72.0 30.0 20.0 Mexico 81.4 80.6 60.0 50.0 Russian federation 69.2 77.4 30.0 25.0 Switzerland 75.8 90.0 80.0 90.0 Sweden 93.2 86.8 80.0 90.0 Luxembourg 74.8 86.8 80.0 90.0
3. Compare the rank in economic freedom (overall) and other indicators with the order of the countries using the per capita GDP in the table in part III of the assignment.
Country Per capita GDP Economic freedom(overall) Business freedom Trade freedom Financial freedom Property freedom Luxembourg 107,773 74.2 74.8 86.8 80.0 90.0 Switzerland 79,023 81.0 75.8 90.0 80.0 90.0 Sweden 55,224 72.9 93.2 86.8 80.0 90.0 United States 49,965 76.0 90.5 86.4 70.0 85.0 Japan 46,72 71.8 81.3 81.8 50.0 80.0 Russian Federation 14,037 51.1 69.2 77.4 30.0 25.0 Mexico 9,747 67.0 81.4 80.6 60.0 50.0 China 6,188 48.0 48.0 72.0 30.0 20.0
On the basis of received results we can make conclusion that the most economic freest country listed here is Switzerland, its economic freedom score is 81% and world rank is 5. Switzerland economy is modern and varied. They are open to global trade and as a result Switzerland becomes to be one of the world’s most competitive and flexible economies. Russian Federation has the lowest score 51.9. To compare in terms of continents we can say that North America is the world’s economically freest region in 2013, U.S. is “mostly free” economy. Compared to last year North America has improved trade freedom and declines business freedom. But U.S. has the highest rank in business freedom.
Europe has the second level in economic freedom. The most financially free countries are Switzerland, Sweden and Luxembourg, the same situation on property rights. The most opened trade country is Switzerland (90.0). China has the lowest ranks on almost all indexes except Trade freedom (72) China has one of the biggest export (after U.S.). Japan’s economic freedom score is 71.8 and free in Business and Trade freedom sectors. In Asia-Pacific region (41 countries) Japan takes 6th place. I found significant relationship between economic freedom and per capita GDP. Countries with high level in economic freedom have higher standard of living.