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Understanding Gross Domestic Product

The Gross Domestic Product
of Ames, Iowa, USA

As we have discussed, estimates of gross domestic product are used by economists to track and compare the creation of wealth and economic growth. However, not all economists who use GDP values have the same focus. Broadly speaking, we can divide the economists who work with GDP estimates into two categories: international economists and domestic economists.

International economists examine the wealth produced by various countries, comparing them to one another. Such economists may also look at large regions of the world consisting of multiple countries, such the European Union or all of North America.

Domestic economists focus on the wealth produced within a specific country, both the country as a whole, as well as the various parts of the country. As such, domestic economists require more granular GDP values. For this reason, government statisticians estimate more than just the national GDP. They also calculate GDPs for the major regions of the country, including states or provinces and even cities.

In the United States, the Bureau of Economic Analysis divides the county into eight economic regions: New England, Mideast, Great Lakes, Plains, Southeast, Southwest, Rocky Mountain, and Far West. Several times a year, the BEA publishes GDP estimates for the entire country and for each of these eight regions. At the same time, they also estimate GDPs for all 50 states and for many U.S. cities.

As an example, let's take a look at the GDP for the city of Ames (population 59,042) in the state of Iowa. Iowa, one of the 50 states, is part of what the BEA refers to as the Plains Region, consisting of seven states: Iowa, Kansas, Minnesota, Missouri, Nebraska, North Dakota, and South Dakota.

According to the BEA, in 2011, the GDP for the entire United States was $15.075 trillion = $15,075 billion. The GDP for the eight-state Plains Region was $1,015 billion; for the state of Iowa, $149.5 billion. Within Iowa, the city of Ames had a GDP of $4.24 billion, which was an increase of 5.8% over the 2010 GDP (good for Ames!).

We can compare the GDP values for the region, state, and city to the GDP for the country as a whole by calculating percentages. To do so, all we need to do is take the various GDPs, divide them by the national GDP, and multiply by 100. In billions of U.S. dollars, we get:

United States: $15,075 = 100%

Plains Region: $1,015 / $15,057 x 100 = 6.7%

State of Iowa: $149.5 / $15,075 x 100 = 1.0 %

City of Ames: $4.24 / $15,057 x 100 = 0.03%

Thus, we can say that according to the U.S. Bureau of Economic Analysis, in 2011, Ames, Iowa (population 59,042) was responsible for 0.03 percent of the gross domestic product of the entire United States. At the same time, the state of Iowa was responsible for 1.0 percent of the U.S. GDP.

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