Question:

What are the unique characteristics that make up the GDP of the US and of other countries?

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Why is the US GDP so high and others so low? What makes up the US GDP? What makes up the GDP of other countries, whose GDP is not as high?

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  1. As an accounting matter, GDP = Consumption + Investment + Government spending + (Exports - Imports).

    Here are a few reasons the US has greater GDP than other countries:

    Consumption:

    * US consumers love consuming.  We place a high value on consumption and a low value on savings, so we consume a lot.

    * Low inflation and well-developed banking means that as soon as I spend money at a shop, the shopkeeper can spend the money at another firm, that firm can spend the money elsewhere, and so forth.  Each transaction along the way counts towards GDP.  In a country with high inflation or a propensity towards using bartering rather than currency for transactions, things might not move as quickly.

    Investment:

    * US financial markets are well-developed, so it is easy for firms to raise capital through stock and bond offerings.  Furthermore, US financial markets are well-regulated, so investors have access to accurate information and legal protections that make them more confident and willing to invest.

    * The US attracts lots of foreign investors, who might otherwise be investing in their own economies.

    Government spending

    * The US has a well-developed government that spends a lot of money on social welfare as well as things like war.  Money spent by the government on goods and services counts towards GDP.

    Net exports

    * The US has high GDP despite its trade deficit, not because of it

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