How The Components of GDP Have Influenced The Business Cycle

The components of GDP are consumption, business investment, government spending and net exports. This graph shows the percent contribution of each component to real GDP just before the recession and during the recovery. The fall in business investment had the biggest impact on the negative growth in GDP during the recession. Business investment picked up and fueled the initial stages of recovery. The recovery stalled due to a decline in business investment and consumption has been the only real contributor to recent growth in GDP. Government spending picked up a bit with the stimulus but it fell after the stimulus ended. Total government spending, which includes state and local expenditures, has not compensated for the decline in business investment. Total government spending has been affected by the loss of around 800,000 state and local jobs due to depressed tax revenues which forced cutbacks on spending.