Sample Economic Essay on Gross Domestic Product (GDP)

GDP Research

Gross Domestic Product (GDP) is the main economic indicator as changes in GDP reflect the status of national economic performance. The paper analyses United States GDP trends in the past four years and suggests likely future changes in economic performance considering historical trends and future developments on issues affecting national economic performance.

Bureau of Economic Analysis presents a quarterly analysis of United States Gross Domestic Product) trends for the last four years. According to the article “GDP Growth Slows In Fourth Quarter”, the most significant growth in GDP in the period covered occurred in the fourth quarter of 2011 when 4.9% growth was recorded. However, the same year recorded the least GDP growth in its first-quarter which was negative 1.3%. Considering annual growth in GDP within the four years, the US achieved the highest average economic growth in 2012 when an average annual growth in GDP of 2.8% was recorded followed by 2010 and 2013 at 2.7% and 1.9% respectively. The least average annual growth in GDP occurred in 2011 at 1.8%. This can be attributed to a negative growth that was recorded in the first quarter of the year.

Data patterns for the four years provided Bureau of Economic Analysis show that the least growth in GDP normally occurs in the first quarter of the year followed by higher growth in subsequent quarters. Except for the year 2012, this trend can be observed in the other three years. In 2010, the lowest GDP growth recorded was 1.6% in the first quarter, in 2011, the lowest growth in the year of minus 1.3% was recorded in the first quarter, and in 2013; the least amount growth of 1.1% was also recorded in the first quarter. If this trend is projected into 2014, it can be expected that the US economy will perform better in the other quarters of the year compared to the current first quarter which ends on March 31. Thus it can be expected that the economy will improve in the near future based on historical economic performance trends.

Government policies influence national economic performance to a great extent. GDP growth during the remaining part of the year is likely to be influenced by the Federal government’s decision to increase the minimum wage payable to low-income employees. According to Nakamura, in the recent past, the President has urged Congress to raise the minimum wage from the current $ 7.25 per hour to $ 10.10 per hour. This is intended to increase income for lowly paid workers hence reducing poverty and inequality. The Gross Domestic Product is normally calculated as the total of personal consumer spending, private sector investments, government expenditure, and net exports (Carbaugh, 234). An increase in any of these components increases the GDP. Thus if wages are increased for low-income workers, they are likely to spend the extra income on essential goods such as clothes rent, and food which will increase the consumption expenditure component of GDP.  Furthermore, increased income can be expected to increase the GDP through the multiplier effect. Tragakes (261) explains that the multiplier effect happens when increased consumption results in increased demand which further increases consumption and in the long run increase the GDP by a higher factor.

Conclusion

There has been an overall pattern of GDP growth through at variable extents in the past four years except for the first quarter of 2011 when the GDP dropped. Generally, higher growth happens in the last three quarters of the year than in the first quarter. Thus the US economy is likely to perform better later in the year. The performance will also be enhanced by the government’s decision to increase minimum wage which will increase consumer consumption.

Works Cited

Carbaugh, Robert J. Contemporary Economics: An Applications Approach (4th ed.) Mason,            OH: Thompson Higher Education. 2006. 234. Web. 29 March 2014.

<http://books.google.co.ke/books?id=9Pascy_5HUMC&pg=PA235&dq=gdp+formula&hl=en&sa=X&ei=oWg2U6P-EovS4QSElIGYBA&redir_esc=y#v=onepage&q=gdp%20formula&f=false>

“GDP Growth Slows In Fourth Quarter” Bureau of Economic Analysis. 27 March 2014. Web.     29 March 2014.

<https://www.bea.gov/newsreleases/national/gdp/2014/pdf/gdp4q13_3rd_fax.pdf>

Nakamura, David “Obama to take minimum-wage push to Conn.’’ The Washington Post. 5 March 2014. Web. 29 March 2014.

< http://www.washingtonpost.com/politics/obama-to-take-minimum-wage-push-to-conn/2014/03/04/db13ebc8-a329-11e3-a5fa-55f0c77bf39c_story.html>

Tragakes, Ellie. Economics for the IB Diploma (2nd ed.) Cambridge, UK. Cambridge             University Press. 2011. 261. Web. 29 March 2014.

<http://books.google.co.ke/books?id=MJsJDKexrTcC&pg=PA261&dq=increased+consumption+increases+Real+GDP&hl=en&sa=X&ei=9Vs2U_-cO-rX7Ab8p4DICQ&ved=0CDEQ6AEwAQ#v=onepage&q=increased%20consumption%20increases%20Real%20GDP&f=false>