Economic Analysis For the Layman

We've all seen the elaborate television segments which pummel us with data and figures surrounding the American economy. Almost as a reminder that this well oil machine is too vast to comprehend. Yet even with its machine-like characteristics, we tend to envision a living entity which can experience emotions like depression, aggression, or fear. With this in mind, how could anyone ever make anything more than a 'guess' towards our economic future? Today you're going to get the answer to that question.
Pages and pages of data will not give you any insight if you don't understand what you're reading. And by understand, you must have at least some knowledge of how popular economic indicators are measured and what they really mean. Today we're going to briefly cover a very important economic indicator, GDP.

Gross Domestic Product, what is it?

The Gross Domestic Product is an estimated measurement of economic activity within the physical borders of the United States over one calendar year. The exact math behind this is very complicated, but quite basically we add all money spent on consumer items, all money invested, and government expenditures. This measurement usually appears in the form of a dollar amount, like 13.5trillion dollars. That means, during that year 13.5 trillion dollars of goods, services, investments, and technological advancements took place. Everything from milking cows to building spacecraft is counted in the GDP.

When the GDP goes up, we assume we built more things (like dairy farms or cars). When the GDP goes down we assume we built fewer things. Gross Domestic Product, how to use it: First, a single GDP figure is hardly useful unless you're writing a book report. For example, a doctor cannot diagnose an illness knowing only the patients temperature. The doctor must also know the patients age, sex, weight, height, past illnesses, etc. The economist, too, uses many different indicators; and GDP is usually compared to other indicators before an analysis can be completed. Today, we are going to compare GDP figures from two years: 2006 and 2007

GDP 2006: 11.3 trillion

GDP 2007: 11.5 trillion

We immediately see that our GDP increased by 200 billion in 2007. We naturally assume that we built 200B worth of new goods which are now circulating in the market, making everyone's life a little better. This new 200B worth of goods and services will give people jobs and hopefully sprout even more growth. Long story short, when our GDP increases we usually see this as a positive indicator. However, there are instances in an economy when its GDP may increase while the economy is actually having serious problems. This is to say, a rising GDP is not always indicative of a thriving economy.

In part 2 of this series we'll cover inflation and the consumer index. Our most basic economic analysis at the end of this series will consist of GDP, consumer index, unemployment, and taxation. After learning these indicators, you will be able to conduct your own basic economic analysis with confidence.http://EzineArticles.com/