Macro Economics – Assignment Example

RUNNING HEADER: Real GDP and CPI Real GDP and CPI BY YOU YOUR SCHOOL INFO HERE HERE Real GDP and CPI Real GDP is determined by taking nominal GDP and dividing by price. In the last year, real GDP has continued to increase by modest percentages. In the first quarter of 2012, real GDP increased by two percent, while in the second quarter, the increase was 1.7 percent. This is attributed to higher consumption in all consumer markets. The largest of these was service expenditures in the consumer sector, rising by 2.4 percent in the last quarter. Exports also contributed to the real GDP increases, with growth of six percent, up from a stable 4.4 percent in the previous two quarters. These factors, among many others, associated with GDP, continue to show a stabilizing or improving economy. Certain sectors, however, saw reductions as it relates to calculating real GDP. The corporate sector increased their product inventories by $49.9 billion in the last quarter of 2012, which was down $7 billion from the first quarter of the year, and down from $70.5 billion in the fourth quarter of 2011. This might indicate less consumption in certain sectors, which could include consumer or business-to-business sales. In any event, these are significant declines that impact real GDP. The Consumer Price Index rose by 1.4 percent between October 2011 and September 2012. The costs of electricity, natural gas, and home heating oil decreased which served to balance out the increases in gas prices. Other important sectors that contribute to CPI calculations include medicine, household durables, used trucks and automobiles, recreation, apparel, and tobacco. All of these sectors combined illustrated a 0.1 percent increase in the last 12 months, which is a nearly stagnant position over the last year. According to all of this data, there does not appear to be a significant concern about inflation. Why is this? Real GDP takes into consideration pricing, and there were significant increases as it relates to household spending. At the same time, the CPI does not show very large increases in virtually all of the sectors that contribute to spending and economic health. Modest increases in one sector were largely offset by decreases in another. The real GDP statistics illustrate that consumers are beginning to re-exert their spending habits while at the same time seeming to be largely unaffected by modest price changes associated with some products in different sectors. The only sector that poses an alarm is the food sector, which showed one of the highest increases of all consumer sectors, rising by 2.3 percent in the last 12 months. This would tend to illustrate that food products have the highest rate of inflation, however the real GDP data did not indicate significant declines in food spending which might mean that food prices, also, are being offset by modest price decreases in other sectors. This would be the most interesting sector to review since it impacts all households and represents a tangible necessity for both urban and rural consumers all across the country. However, overall inflation does not appear to be in a state that would prompt alarm of economists.