Microeconomics- Analysis of Gdp of the U.K.

In this research paper, I will provide an analysis of the Gross Domestic Product (GDP) of the United Kingdom during the two-year period 2012-2013 with an analysis inclusively consisting of prior two years 2010-2011 and with a forward outlook of 2014. GDP is a tool economists use to measure the aggregate market value of all final goods and services produced in a year within a nation.

To clarify the components of GDP before we delve into the analysis – the gross domestic product of a country is comprised of household consumption (C), gross investment (I), government expenditure and revenue (G), and net exports which is made of up export - imports (X). All these components combined illustrate the country’s output and input in terms of production and consumption. While nominal GDP is the total value of the final goods and services produced in a given year, real GDP does not take into account fluctuating prices it focuses the volume or quantity of goods and services.

According to the IMF World Economic Outlook (October 2014), the United Kingdom was the sixth largest economy ranked by current GDP prices at 2.8 trillion USD forecast for 2014. The UK comes behind the US, China, Japan, Germany and France respectively.

The reason why GDP is usually used as an economic indicator of health is because it illustrates a whole picture of either economic growth, recovery or recession and an economy’s general monetary ability to address externalities. The chart below illustrates the United Kingdom’s GDP growth from 2010 till 2014. As the trend indicates there was a sizeable growth from 2010 to 2011 and 2011 to 2012 with a slight decrease from 2012 to 2013 and a forecasted growth in 2014. (World Bank)

As shown in the graph below, the United Kingdom’s GDP annual growth rate from 2010 till 2014 (forecasted). From 1993 to 2007 the United Kingdom has reported an average annual rate of growth of 3.3 percent. Yet, since the recession in 2008 and 2009 the growth has been sluggish and in the last three years averaged meager 0.9 percent. Growth from 2009 to 2010 was 1.7%, 2010 to 2011 was 1.1%, 2011 to 2012 was 0.3%, and 2012 to 2013 was 1.7%. To compare this with Real GDP growth rate year over year (YOY), as shown below – the numbers are comparable. Growth from 2009 to 2010 was 1.66%, 2010 to 2011 was 1.12%, 2011 to 2012 was 1.28%, and 2012 to 2013 was 1.74%. (Source: Statista, 2014)

The causes of the low economic growth in terms of GDP has to do with a slower than expected recovery from the recession. From peak to through in 2009, the economy shrank by 7.2%. In Q2 2-14 GDP was estimated to be .2% above the peak in Q1 2008. The Bank of England provided data on real GDP back to 1700 and it seems that this current recovery is the slowest and possibly worst seen in UK history. This has been an anomaly compared with