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June 1998, Vol. 121, No. 6
GDP components' contributions to U.S. economic growth
Thomas Boustead
- Recently,
the Bureau of Labor Statistics projected that U.S. real
gross domestic product (GDP) will exceed $8.5 trillion by 2006, an increase
of more than $1.6 trillion during the 19962006
period.1 In the BLS economic projection,
real GDP and
its components were stated in chained 1992 dollars, as is
typically done for real output measures.2 However, the BLS
projection employs a terminal year 14 years from the 1992
base year used for the chained dollars, and because
relative prices in the economy can change substantially
over 14 years, the question arises as to whether some
other base year would be more appropriate. This article
explores the issue by rebasing from chained 1992 dollars
to chained 2001 dollars. While this rebasing does not
change calculated growth rates, it does affect
calculations of how the various GDP components contribute to overall GDP growth.
-
- Economic growth can be analyzed from
several vantage points, such as the growth rates of the
various GDP
components or their contributions to growth. Each measure
has advantages, and certain weaknesses as well. Growth
rates, for example, highlight the dynamic sectors of the
economy. But often the fastest growing components of GDP are the smaller ones.
These components will contribute proportionately less to
the overall increase in GDP because their growth rates apply to small
initial values.
-
- Conversely, the contributions to
growth of the GDP componentsdefined for each component as
the ratio of the change in that component over the
projection period to the total change in GDP over the
period, expressed as a percentagepinpoint those
components most responsible for additions to GDP. However, with this
approach, some imprecision results: upon aggregation of
the component percentages, a residual amount remains.
This excerpt is from an article published in
the June 1998 issue of the Monthly Labor Review. The full
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Footnotes
1 See Thomas Boustead, "The U.S. Economy to
2006," Monthly Labor Review, November 1997, pp.
622.
2 See, for example, "BEA Current and Historical
Data" (Table 1.2), Survey of Current Business, April
1998, p. D2.
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