Gross Domestic Product

GDP, Gross Domestic Product, is the market value of all final goods and services produced within a country in a given year.

Consumption

InvestmentNet Exports

Government

Four Components of GDP

• C• largest component of GDP• household spending

• Nx• includes foreign trade• exports - imports

• I• spending by business

firms

• G• Federal• State• Local

Consumption

Consumption includes all spending by households on goods and services. Consumption spending is broken up into four parts: durables, nondurables, and services.

Consumption – Durable Goods

durable goods include goods such as cars, large appliances and other goods that last awhile.

Consumption – Nondurable Goods

nondurable goods are goods that consumers buy but don’t last such as food, clothing, and other goods

Consumption – Services

services include intangible items such as haircuts, education, medical care and legal services (shown below)

Investment

Investment spending by business firms on goods and services that will be used to produce other goods and services.

Investment

Investment spending includes the purchases of capital equipment, inventories, structures such as warehouses, and the buying of households by individuals.

Investment – Does Not Include

Investment spending does not include spending on stocks or bonds.

Government

Government spending includes purchases of goods and services made by all levels of government: federal, state, local.

Government

Government spending can include anything from aircraft carriers to elementary schools.

Net Exports

Net exports includes spending made in the international sector. This includes all spending on our goods and services from the rest of the world minus spending we make on goods and services from the rest of the world.

Net Exports

Net Exports = exports – importsNx = X - M

Exports are goods we produce and sell to the rest of the worldImports are goods that are produced elsewhere which we buy

GDP