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Kim Butler

Partners for Prosperity, Inc.

City:Mt. Enterprise

State: TX

I have 20+ years of handling alternative investments in cash, growth and income for clients nationwide.  I strive to help my clients with all things financial in every way possible over the phone and the web.  I own an alpaca farm which I enjoy working during my downtime.  I also enjoy gardening, writing and reading books.  I also train other advisors on Prosperity Economics.

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GDP, the Deficit, the National Debt and How They Relate

A three-part article on how they interrelate

Part 1 – GDP

Regularly, MillionaireCorner and other news organizations report on economic indicators for the U.S. economy such as the GDP.  GDP, or Gross Domestic Product, is a measurement or calculation of the value of all of the goods and services produced by a country over a period of time, usually a year.  In the United States, the GDP for 2010 was $14.6 trillion as calculated by the U.S. Bureau of Economic Analysis.

Simply stated, the calculation for GDP consists of

Personal Consumption of Goods and Services + Business Investment + Government Spending + Exports – Imports = GDP

The U.S. is a consumer-driven economy, meaning that people consume a majority of what is produced in the U.S.  Over $10.3 trillion of the U.S. GDP in 2010 was for personal consumption of goods (both durable and non-durable) and services which amounted to 70.6% of the $14.6 trillion total.

The U.S. economy is the largest single country economy in the world.  The European Union (consisting of 27, mostly European, member nations) has a larger GDP of $15.9 trillion.  After the EU and the U.S., come China ($5.7 trillion GDP), Japan ($5.4 trillion GDP), Germany ($3.3 trillion GDP), France ($2.5 trillion GDP),  and the UK ($2.3 trillion GDP).  The GDP of the entire world is $62.9 trillion, according to figures from the International Monetary Fund.

A GDP measurement, calculated quarterly in the U.S., gives signs as to the health of an economy.  An increasing GDP usually indicates a growing economy with more goods and services being produced.  It might also indicate that jobs are being created or that exports are increasing.  A GDP growing at 4% to 6% for a fairly mature economy such as the U.S. is widely considered to be a healthy rate of growth without risk of an overheated economy and the inherent risks of inflation.

Emerging economies such as Brazil and China may report GDP growth rates of 8% or more.  But with such high rates of growth come increased inflation fears.  Governments frequently respond with a tighter monetary policy to slow growth and quell inflation.

For the fourth quarter of 2010, the Bureau of Economic Analysis for the U.S. released a final estimate for GDP growth of 3.1% for the economy.  This rate of growth was dragged down somewhat by a stubbornly slow housing market but buoyed by consumer spending in the quarter.

Next:   Part 2 - The U.S. Deficit and GDP