Financial Tip / Literacy

What is GDP Growth Rate?

GDP stands for gross domestic product which measures how fast components of our economy are growing.  Those components can be added together via three methods: final expenditures (spending), value-added in production, or income. There are four components to GDP:

1. Personal Consumption – how much money Americans spend on goods and services
2. Business Investment – how much money business are putting into construction and inventory.
3. Government Spending – how much money the government is spending.
4. Net Trade – Value of exports (goods and services) minus imports (goods and services).

Key Points:

• The GDP growth rate indicates how quickly or slowly the economy is growing or shrinking.
• It is driven by four components of GDP, the largest being personal consumption expenditures.
• The Bureau of Economic Analysis (BEA) tracks GDP growth rate because this is a vital indicator of economic health.
• When measuring growth, the BEA uses real GDP because it adjusts for the effects of price level change as measured by the BEA’s GDP implicit price deflator.