If the GDP is Up, why jis America Down? In order to be able to answer this question, we
must first look at its origin, and what GDP is. In the year 1931, the presence of a group of
government and private experts is needed at congressional hearing to answer rudimentary
questions about the economy. After failing to answer the questions, the Senate at the time
asked the Department of Commerce to prepare comprehensive estimates of national
income. An economist by the name of Simon Kuznets is tasked to develop a uniform set of
national accounts, which is the first prototype of our modern day GDP. Following World
War II, economists at the time believed that in order to answer questions about the
country’s overall welfare, a window into an economy’s life force, GDP is needed.
GDP which is short for Gross Domestic Product is used by economists to measure total
production. GDP is the market value of all final goods and services produced in a country
during a period of time, typically one year. When measuring GDP only the final value of
goods and services are used. Intermediates goods are not included in GDP rather the value
that it adds to a particular product, for example a light bulb in a lamp, is counted once
when the light bulb manufacturer sold it to the lamp company, and a second time when the
lamp is sold, with the light bulb inside, to a consumer. GDP is divided by the BEA into
four major categories of expenditures: consumption, investment, government purchases,
and net exports. Economists use these categories to understand why GDP fluctuates and to
forecast future GDP. Personal consumption expenditures are made by households. These
expenditures include services such as medical care, education, nondurable goods (goods
that last less then one year), and durable goods (goods that last longer then one year).
Investment can be broken down into three categories: Business fixed investments,
spending by firms on new factories, and equipment. Residential investment, spending by
households and firms on new single-family and multi-unit houses. Changes in business
inventories, which are changes in the stocks of goods that have been produced but not yet
sold. Government purchases are spending by federal, state, and local governments on
goods and services, such as teachers’ salaries, highways, and aircraft carriers. Net exports
are goods and services produced in the United states and purchased by foreign firms,
