On Friday, reports were that the U.S. Economy grew at a rate of 2.2 percent. And while many reports say that economists expected that rate to be higher – 2.6 percent – what does it mean?
The number refers to the “Gross Domestic Product,” and that is the combination of measures of various aspects of the economy. In formulaic terms it looks like this:
GDP = C + I + G + (Ex – Im)
Or Gross Domestic Product (GDP) = Consumption (C) + Investment (I) + Government (G) + (Exports (Em) – Imports (Im))
In that equation “Consumption” is consumer purchases, what you and I buy at the store, or buying a new house or car; “Investment” is what a business spends to, say, get knifes and forks for a restaurant, or (classically) build a new plant, or a new office building; “Government” is government spending and at all levels, Federal, State, and Local. (An important point, since many think the “G” only concerns the Federal Government); “Exports” are those goods and services that are shipped to other countries, or just consumed online by other countries; “Imports” are the opposite: those goods and services that are shipped to America, or just consumed online by Americans, but come from websites of businesses that originate in other countries.
The current total GDP for America stands, as of this writing, at $14.59 Trillion, according to The World Bank. This is what that looks like in historic growth terms Link: http://www.google.com/publicdata/explore?ds=d5bncppjof8f9_&met_y=ny_gdp_mktp_cd&idim=country:USA&dl=en&hl=en&q=gdp
If you look at the dip in the chart, that’s the recession that was in 2009, and started after the Great Crash of September 18th 2008, and was the first full year of President Barack Obama’s first term. What got us out of that dip, really so great one has to call it a contraction, is the 2009 Economic Stimulus Package of $800 billion in emergency spending and tax cuts. Ideally, the Economic Stimulus Package should have been $1.2 trillion, and because, as Paul Krugman put it:
“I understand that there’s difficulty in actually spending that much money, and I–they’re also afraid of the–of the T word. They’re afraid of a trillion dollar for the two-year number. But you know, the back of my envelope says it takes roughly 200 billion a year to cut the unemployment rate by 1 percent from what it would otherwise be. In the absence of this program, we could very easily be looking at a 10 percent unemployment rate. So you do the math and you say, you know, even these enormous numbers we’re hearing about are probably enough to mitigate but by no means to reverse the slump we’re heading into.
The question of why some think the stimulus wasn’t large enough became a question on Quora:
A popular argument among those on the 2009 Recovery Act, which was at least $787B, wasn’t big enough. If political climate wasn’t a concern, what size should it have been?
One answer given by Christine Romer was $2 trillion. The problem was the number was thought by some to be too large for Congress to pass.
So, U.S. GDP Grew At 2.2 Percent?
Yes. “U.S. Economic Growth” refers to GDP, so, GDP grew by 2.2 percent in the Second Quarter of 2012.