GDP Quarter on Quarter

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Gross Domestic Product or GDP Quarter on Quarter reflects changes in the market value of goods and services produced by the domestic economy, in the reported quarter compared to the previous quarter.The US GDP is calculated based on expenditure. Therefore, the general calculation formula is a sum of the following components:

  • Expenditures on personal consumption
  • Gross capital investment (investment in private companies, for example equipment)
  • Government spending (both consumption and investment)
  • Net Exports (exports minus imports. The value can be negative)

US Bureau of Economic Analysis estimates GDP components based on surveys of retailers, manufacturers and construction companies, as well as by analyzing trade flows.

GDP is based on the monetary estimate of the value of goods, therefore it requires an adjustment for inflation. Depending on whether adjustment is applied, GDP can be real and nominal. Nominal GDP ignores inflation and deflation, that is why it is difficult to measure the indicator change based on the nominal value. Real GDP accounts for the effect of inflation and enables the seamless comparison of economic activity over long periods (for example by showing GDP change in relation to the previous year or quarter in percentage). For this purpose, the GDP deflator is included in the calculation formula.

GDP is usually used as an indicator of the national economy state and of the standard of living. Its growth is interpreted as the strengthening of economy, the decline shows weakening.

The impact of GDP on dollar quotes is associated with inflation. In turn, the relationship between GDP and inflation is very delicate. In general, GDP growth is primarily connected with an increase of domestic expenditures, which may increase inflation. This growth may spur the economy and push dollar quotes upwards. However, too much GDP growth may be dangerous, since inflationary overheating leads to economy weakening. Most economists today agree that economy can be safe and stable with 2.5% – 3.5% GDP growth per year.

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