3.3 GDP as expenditure: the components of GDP

components of GDP

expenditure by households on consumer G&S (C)
expenditure by firms and gov on fixed investment in machinery and buildings and new housing (I)
expenditure by firms on changes in inventories (II)

expenditure by gov on G&S (G)

expenditure by people in other countries = exports (X)

need to subtract imports (M) from X

GDP equation

GDP = C + I + II + G + (X-M)

consumption

G&S purchased by households
goods = tangible typically

services = intangible typically

fixed investment

(I), spending by firms and gov on new equipment and new commercial buildings, and spending on new residential dwellings, including by households aka gross fixed capital formation

change in inventories (II)

output firms produce but don’t sell

aka stocks

**important to calculate so statisticians reach the same # no matter which method they use to calculate GDP

gov spending on G&S (G)

consumption purchases by gov i..e office equipment, software, cars

cservices: wages, armed services, police, teachers, scientists

**government investment spending (I) is like roads, public hospitals, schools, etc.

government transfers

NOT included in G bc households receive them as income

(benefits and pensions)

trade balance

exports - imports value

deficit if imports > exports
surplus if exports > imports