The United States (US) Economy According to the Bureau of Economic Analysis, in the US in the first quarter of 2015, the real Gross Domestic Product (GDP) increased at an annual rate of 0.2% compared with an increase of 2.2% in the fourth quarter of 2014. The increase reflected positive contributions from consumption expenditure and company investment. These were partly offset by negative contributions from exports and government spending. Imports, which are a subtraction in the calculation of GDP, increased. Some selected changes in GDP contributions are shown in Table 1. Table 1 Selected changes in US GDP components % annual changes in selected components of US GDP 4th quarter 2014% 1st quarter 2015% Consumption expenditure — Durable goods Non-durable goods +4.4 +6.2 +4.3 +1.9 +1.1 +0.3 Exports +4.5 –7.2 Government expenditure and investment +1.6 –1.5 The slower overall growth of GDP in the first quarter of 2015 may have been linked to changes in other countries. China's economic growth rate was reported to have dropped from over 10% to 7%; the Russian economy was affected by low oil prices and economic sanctions; Brazil was experiencing high inflation and low business confidence; Canada's economic growth rate was predicted to decrease because of lower oil prices. In addition to changes in other countries, business spending in the US on equipment, machinery and buildings decreased. There was, however, some revival in consumer confidence. House prices rose on average by 5% and a rising demand for housing was expected to continue. The labour market appeared to be improving with unfilled job vacancies at their highest level since 2008. Larger companies were reported to be about to offer pay rises to their lower paid workers. Wage growth, however, has to be paid for somehow and executives said that they had little room for cutting other costs. This, together with fierce competition, made it difficult to increase prices: cuts in profits seemed more likely. Source: Sunday Times, 3 May 2015

1. (a)What is meant by real Gross Domestic Product?[3]
2. (b)Analyse why the 'changes in other countries' may affect the rate of growth of GDP in the US.[4]
3. (c)Apply the circular flow of income model to the information in Table 1 to discuss why the increase in the US GDP in the first quarter of 2015 was lower than the increase in the last quarter of 2014.[6]
4. (d)Discuss whether there is any evidence in the information to suggest that the US could have expected a higher rate of growth in GDP in the first quarter of 2015 than that which occurred.[7]

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