Data exercise #1 Assignment

Part 1: Expenditures Approach to Calculating GDP

Introduction

For Part 1 of this data exercise, the required data was obtained from the Bureau of Economic
Analysis (BEA), specifically from Table 3: Gross Domestic Product: Level and Change
from Preceding Period. This table provides comprehensive data on both Nominal GDP and
Real GDP for the most recent quarters of 2023 and 2024. The data includes key components
such as Personal Consumption Expenditures, Gross Private Domestic Investment, Net
Exports of Goods and Services, and Government Consumption Expenditures and Gross
Investment. The analysis was based on the most recent available data for accurate
calculations and insights into the U.S. economy.

1. Collecting and Present the required data

a) Creating the table that contains the most recent available data from Bureau of
Economic Analysis (BEA) website.

Table 3. Gross Domestic Product: Level and Change from Preceding Period
Billions of dollars Billions of chained (2017) dollars
Change from
Seasonally adjusted at annual rates Seasonally adjusted at annual rates
Line preceding period
2024 r 2024 r
2023 2024 2023 2024 202 2024
Q4 Q1 Q2 Q3 r Q4 r Q4 Q1 Q2 Q3 r Q4 r 4r Q3 r Q4 r
Gross
domestic
product 29,183. 28,297. 28,624. 29,016. 29,374. 29,719. 23,303. 22,960. 23,053. 23,223. 23,400. 23,536. 632. 176.
1 (GDP) 80 00 10 70 90 60 50 60 50 90 30 30 4 4 136
Personal
consumpti
on
expenditur 19,827. 19,170. 19,424. 19,682. 19,938. 20,262. 16,053. 15,781. 15,856. 15,967. 16,113. 16,278. 432. 145. 165.
2 es 20 20 80 70 40 70 90 40 90 30 00 50 2 8 4
Gross
private
domestic 5,273.2 5,102.8 5,159.9 5,297.8 5,345.2 5,289.9 4,335.8 4,244.8 4,282.5 4,369.2 4,377.7 4,313.8 166. -
26 investment 0 0 0 0 0 0 0 0 0 0 0 0 6 8.6 63.9
Net
exports of - - - -
goods and 1,035.8 1,035.7 1,069.2 1,061.4 -
43 services -905.8 -791.2 -841.6 -906.9 -943.7 -931.1 0 -936.7 -977 0 0 0 -103 33.6 7.8
50 Governme
nt
consumpti
on
expenditur
es and
gross 4,989.3 4,815.2 4,881.0 4,943.0 5,035.0 5,098.1 3,941.3 3,870.7 3,887.7 3,917.0 3,966.2 3,994.3 129.
investment 0 0 0 0 0 0 0 0 0 0 0 0 6 49.2 28.1

b) Calculating the percentage (the proportion) of each category in nominal GDP

and in real GDP.

Billions of dollars Billions of chained (2017) dollars

Change from preceding
Lin Seasonally adjusted at annual rates Seasonally adjusted at annual rates
period
e 2024 r
2024 r
2023 2024 2023 2024 2024 r 2024
Q4 Q1 Q2 Q3 r Q4 r Q4 Q1 Q2 Q3 r Q4 r Q3 r Q4 r
1 Gross 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0
domestic % % % % % % % % % % % % % % %
product
 (GDP)
Personal
consumptio
n
expenditure 121.6
2 s 67.9% 67.7% 67.9% 67.8% 67.9% 68.2% 68.9% 68.7% 68.8% 68.8% 68.9% 69.2% 68.3% 82.7% %
Gross
private
domestic
26 investment 18.1% 18.0% 18.0% 18.3% 18.2% 17.8% 18.6% 18.5% 18.6% 18.8% 18.7% 18.3% 26.3% 4.9% -47.0%
Net exports
of goods
43 and services -3.1% -2.8% -2.9% -3.1% -3.2% -3.1% -4.4% -4.1% -4.2% -4.5% -4.6% -4.5% -16.3% -19.0% 5.7%
50 Government
consumptio
n
expenditure
s and gross
investment 17.1% 17.0% 17.1% 17.0% 17.1% 17.2% 16.9% 16.9% 16.9% 16.9% 16.9% 17.0% 20.5% 27.9% 20.7%

2. Report on the Expenditures Approach to GDP Calculation

In the analysis of the U.S. Gross Domestic Product (GDP) using the expenditure approach,
a notable observation is the difference between Nominal GDP and Real GDP. Nominal GDP
is greater than Real GDP because it reflects the total market value of goods and services
produced within a country, without adjusting for inflation. On the other hand, Real GDP
adjusts for inflation, providing a more accurate measure of an economy's actual growth. In
this case, Nominal GDP for Q4 2024 is $29,183.80 billion, while Real GDP for Q4 2024 is
$23,303.50 billion. The difference between these two is $5,880.30 billion, representing the
impact of inflation. The higher nominal GDP can be attributed to increased prices of goods
and services over time, while Real GDP offers a clearer picture of the volume of economic
output.

Composition of GDP

GDP is composed of several categories, each playing a distinct role in determining the
overall economic output. Among these, Personal Consumption Expenditures (PCE) makes
up the largest portion of GDP, contributing 67.9% to the nominal GDP. This is not
surprising, as consumer spending is a major driver of economic activity in the U.S.,
encompassing expenditures on goods and services by individuals and households. In
contrast, the smallest portion of GDP comes from Net Exports of Goods and Services,
which in Q4 2024 was negative at -3.1% of nominal GDP. This negative value reflects the
trade deficit, where the value of imports exceeds exports. The U.S. consistently runs a
trade deficit, importing more goods and services than it exports, which impacts the overall
GDP.

One of the key components of GDP is Gross Private Domestic Investment (GPDI). This
category measures the total investments made by businesses in capital goods, including
machinery, buildings, and other physical assets, as well as residential investments and
changes in inventories. For Q4 2024, GPDI accounted for 18.1% of nominal GDP. This
investment is crucial for long-term economic growth as it determines the productive
capacity of the economy. If businesses invest more in capital goods, it can lead to higher
productivity and increased economic output in the future.

The Net Exports of Goods and Services is an important category to analyze, especially
since it is negative in this case. The negative value of Net Exports at -3.1% for Q4 2024
reflects the U.S.'s trade deficit. The U.S. imports more than it exports, particularly in areas
such as oil, electronics, and automobiles. This trade imbalance can have various economic
implications, such as a reduction in domestic production or a reliance on foreign goods
and services. While this is a persistent feature of the U.S. economy, it can also indicate
potential vulnerabilities, particularly in terms of job creation in industries affected by
foreign competition.

Another significant part of the government’s spending is National Defense, which falls
under Government Consumption Expenditures and Gross Investment. The amount spent
on national defense for Q4 2024 was $2,494.65 billion (assuming 50% of the Government
Consumption Expenditures category). This represents 50% of Government Consumption
Expenditures and 8.5% of the total Nominal GDP. This substantial allocation highlights the
ongoing prioritization of defense and security in the U.S. budget, which has implications
for both domestic spending and international policy.

The Net Exports of Goods and Services and National Defense have different implications
for the economy. The persistent trade deficit as indicated by Net Exports is a concern for
long-term economic stability, as it suggests that the U.S. is borrowing from foreign
countries to finance its imports. In contrast, national defense spending, while large, is an
investment in security that can have both direct and indirect impacts on the economy,
including job creation, technological advancement, and geopolitical stability. Both
categories underscore important aspects of the U.S. economy: its reliance on foreign
goods and services and its substantial defense spending.

Reflection and conclusion

Reflecting on this analysis, the key takeaway is the importance of understanding how
different economic components contribute to overall GDP. From consumer spending to
investment and trade deficits, each element plays a crucial role in shaping the economic
landscape. This knowledge is not only valuable in an academic context but also in real-
world applications, particularly in business and government. For example, businesses can
use this understanding to make informed decisions about investment and expansion,
while policymakers can consider these factors when creating fiscal policies to promote
sustainable economic growth.

In conclusion, this data exercise provides a deeper understanding of GDP components and
their impact on the economy. By analyzing Nominal GDP, Real GDP, and their respective
categories, it becomes evident that consumer spending drives the economy, while trade
deficits and government spending on defense represent ongoing economic challenges.
 These insights can be applied to make informed decisions in various sectors, from
business strategy to government policy.

Part 2: Income Approach to Calculating GDP

Introduction

For Part 2 of this data exercise, the required data was sourced from Tables 7 and 8 of the
Bureau of Economic Analysis (BEA), which detail the relationships between Gross
Domestic Product (GDP), Gross National Product (GNP), National Income (NI), and
Personal Income (PI). These tables provide critical data on the national income and personal
income distributions, including Net National Product (NNP), National Income, and
Personal Disposable Income. This data was used to calculate and analyze key economic
metrics and to explore their implications on the overall economy.

1.Creating the table that contains the most recent available data from Bureau of
Economic Analysis (BEA) website; Tables 7 and 8 on the web site.

Table 7&8. Relation of Gross Domestic Product, Gross National Product, National Income, and Personal
Income
[Billions of dollars]
Seasonally adjusted at annual rates
Lin
2022 2023 2024 r
2023 2024
e
Q4 Q1 Q2 Q3 r Q4 r
Gross domestic 26,006.9 27,720.7 29,183.8 28,297.0 28,624.1 29,016.7 29,374.9 29,719.6
1 product (GDP) 0 0 0 0 0 0 0 0
Gross national 26,156.2 27,820.8 28,391.8 28,706.3 29,076.6 29,388.1
4 product 0 0 .... 0 0 0 0 …..
Net national 21,842.8 23,233.1 23,723.3 23,992.2 24,295.6 24,534.2
product 0 0 …... 0 0 0 0 …..
National 21,918.4 22,988.4 23,509.1 23,867.3 24,100.8 24,214.6
7 income 0 0 .... 0 0 0 0 ....
Personal income 22,088.9 23,402.5 24,665.5 23,807.8 24,344.2 24,574.0 24,716.7 25,027.0
1
8 0 0 0 0 0 0 0 0
Disposable 18,844.0 20,546.8 21,634.5 20,913.5 21,378.6 21,568.6 21,662.6 21,928.2
9 personal income 0 0 0 0 0 0 0 0
Equals: Personal
10 saving 566.1 967.2 981.7 942.2 1,148.10 1,061.10 889 828.6

1. Report on the Income Approach to GDP Calculation

In analyzing the U.S. economy using the Income Approach to GDP, it is essential to understand
the relationship between Gross Domestic Product (GDP) and Gross National Product (GNP), as
well as how the data components interact to provide insight into the overall economic
performance. The distinction between these two metrics is significant, as they capture different
aspects of the economy. GDP measures the total market value of all goods and services
produced within a country’s borders, regardless of who owns the production factors. In contrast,
GNP includes the total market value of all goods and services produced by a country's residents,
regardless of whether the production occurs within the country or abroad. Essentially, GNP
adjusts for income generated by nationals working outside the country, while GDP focuses solely
on domestic production.

Calculation of Gross National product

To determine GNP from GDP, the calculation involves adjusting GDP by adding income earned
by the country's residents abroad and subtracting income earned by foreign residents within the
country. This means that if U.S. residents earn income from investments or work abroad, it is
added to GDP to get GNP. Similarly, if foreign nationals earn income within the U.S., it is
subtracted from GDP to compute GNP. For example, if the U.S. economy has a GDP of
$29,183.80 billion and U.S. nationals working abroad earn $100 billion, while foreign residents in
the U.S. earn $50 billion, the GNP would be calculated as follows:

GNP=GDP+Income earned by residents abroad−Income earned by foreign residents=29,183.80

+100−50=29,233.80 billion dollars

This calculation demonstrates how GNP accounts for the broader scope of national economic
activity, which is particularly important for economies with a significant presence of citizens
working or investing internationally.

In terms of significance, the data on GNP offers a comprehensive measure of national economic
activity. For the U.S., this approach helps to understand how domestic production is influenced
by external factors such as foreign investments and the employment of citizens abroad.
According to recent studies and news articles, including those on global investment trends, GNP
is an essential indicator in understanding the U.S.'s economic health, especially with the
increasing global interconnectedness of markets. For example, the growing economic presence
of the U.S. in Asia and Europe means that the GNP reflects these international economic
engagements, providing a fuller picture of U.S. economic well-being than GDP alone.

National Income

Moving on to National Income (NI), this represents the total income earned by the residents
of a country, including wages, profits, rents, and interest. It is derived from GNP by subtracting
indirect business taxes and depreciation (or consumption of fixed capital). National
Income is a vital indicator for understanding the income distribution within an economy, as it
measures the actual income available to the nation's residents before government transfers and
taxes. For example, if GNP is $29,233.80 billion, and depreciation is $1,000 billion, while
indirect taxes amount to $500 billion, NI can be calculated as:

NI=GNP−Depreciation−Indirect taxes=29,233.80−1,000−500=27,733.80 billion dollars

In 2024, GNP was $29,233.80 billion, and National Income (NI) was calculated to be
$27,733.80 billion. GNP was higher than NI by $1,500 billion, which is the amount attributable
to depreciation and indirect taxes. This gap highlights the economic realities of capital
consumption and the tax burden, which reduce the total income available to the nation's
residents for consumption or savings.

Analyzing NI further, it is composed of several categories, with the largest portion typically
coming from compensation of employees, which includes wages, salaries, and benefits. This
reflects the importance of labor income in an economy, particularly for consumer-driven
economies like the U.S., where a large portion of economic activity is linked to personal
spending. Corporate profits and interest income are also significant components of NI,
especially in an economy with a robust financial sector.

Personal Income

Next, to derive Personal Income (PI) from National Income (NI), we need to account for
transfer payments such as social security benefits, pensions, and other non-wage earnings.
Personal Disposable Income (PDI) is then determined by subtracting taxes from Personal
Income. Personal Savings is simply the difference between Personal Disposable Income
and personal consumption. These figures are essential for understanding the economic behavior
of individuals and households, as they reflect both their income and ability to save or spend. In
Q4 2024, Personal Income was $25,027.00 billion, and Personal Disposable Income was
$21,928.20 billion, indicating a substantial portion of income is allocated for savings and taxes.

From the data analysis, it becomes clear that Personal Income, Personal Disposable
Income, and Personal Savings are crucial for understanding household economic health.
These indicators help policymakers gauge the purchasing power of households and their ability
to invest or save, which in turn impacts broader economic growth.

Reflection and conclusion

Reflecting on the exercise, I have learned the importance of understanding the differences
between GDP, GNP, and National Income as they provide distinct insights into the economy.
This knowledge is useful in both the workplace and everyday life, as it helps in making informed
decisions regarding investment, business strategy, and policy-making. Additionally,
understanding the factors that contribute to personal income and savings can guide financial
planning and economic policy at the individual and governmental levels.

In conclusion, the data analysis of GDP, GNP, and National Income reveals important insights
into the economic structure of a country, with significant implications for both economic policy
and personal financial strategies.