ECON 248 5.3 The Components Of GDP

To calculate GDP, we use the following formula where “Y” is GDP.

Y = C(Consumption) + I(Investment) + G(Government Purchases) + NX(Net Exports)

An equation that must be true by the way the variables in it are defined. GDP is an example of it.

Identity

A variable for calculating GDP, which is the spending by households on goods and services. Goods are tangible items while services are intangible.

Consumption(C)

A variable for calculating GDP which describes the purchase of goods which will be used to produce more goods and services in the future.

Investment(I)

A variable for calculating GDP which comprises the spending of goods and services by a government.

Government Purchases(G)

A payment to households which the government can make, which doesn’t result in the immediate gain of a good or service.

Transfer Payment

Transfer Payments alter (), but are not recorded in () since they do not affect an economy’s production.

Household Income, GDP

A variable for calculating GDP which comprises the total exports made minus the total imports.

Net Exports(NX)