07. Measuring Domestic Output/Income

Expenditure Approach to GDP

Calculating GDP by adding up spending on all final goods and services produced in the nation during the year

Income Approach to GDP

Calculating GDP by adding up all earnings from resources used to produce output in the nation during the year

Final Goods and Services

Goods and services sold to final, or end, users

Intermediate Goods and Services

Goods and services purchased by firms for further reprocessing and resale

Double Counting

The mistake of including both the value of intermediate products and the value of final products in calculating gross domestic product; counting the same production more than once

Parts of GDP

• Consumption

• Investment

• Physical Capital

• Residential Construction

• Inventories

• Government Purchases

• Net Exports

• Aggregate Expenditures

• Aggregate Income

Consumption

Household purchases of final goods and services, except for new residences, which count as investment (68%)

Investment

The purchase of new plants, new equipment new buildings, and new residences, plus net additions to inventories (16%)

Physical Capital

Manufactured items used to produce goods and services; include new plants and new equipment

Residential Construction

Building new homes or dwelling places

Inventories

Producers stocks of finished and in-process goods

Government Purchases

Spending for goods and services by all levels of government, government outlays minus transfer payments (20%)

Net Exports

The value of a country's exports minus the value of its imports (-4%)

Aggregate Expenditures

Total spending in final goods and services in an economy during a given period, usually a year (C+I+G+X-M)

Aggregate Income

All earnings of resource supplies in an economy during a given period, usually a year