what i learned today

If you haven’t heard, GDP is up! To 4.9%, one of the highest numbers we’ve seen (and will ever see)

But what is GDP and why does it matter? GDP stands for Gross Domestic Product. It is an indicator of the growth of the economy and is measured each quarter. It’s backward looking data, so often people are not too excited by it. It just gives us an idea of how fast our economy is growing, or rather has grown in the last quarter or year. When someone says “the economy grew by 4.9%,” they’re referring to GDP. And it is important to the Federal Reserve when it determines its position on interest rates. When GDP is high, it means the economy is healthy and growing, there is low unemployment, and wages have typically increased. When GDP is down, it means our economy is slowing.

Note from your high school econ class that GDP = C + I + G + (X-M) = consumption + investment + government spending + (exports – imports). So that means consumer spending or investment or government spending or exports were high, or imports were very low to cause such a high GDP. What is curious to me is how we are stipulating a recession due to the current “downturn” caused by the subprime mess, high oil prices, and deflating housing market, even though our economic growth in the last quarter was pretty astounding.

Anyway, that’s the GDP.