GDP or Gross Domestic Product is the total market value of all final goods and services produced within a country in a given year. It has four main components: consumption, investment, government spending, and net exports. Consumption, the largest component, includes household spending on durable goods, nondurable goods, and services. Investment is spending by business firms on capital equipment and structures to produce other goods and services. Government spending encompasses purchases by federal, state, and local governments. Net exports is calculated as exports minus imports and represents international trade.

2. 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.

3. Four Components of GDP
Consumption
Government
• C
• largest component of GDP
• household spending
Net Exports Investment
• Nx
• includes foreign trade
• exports - imports
• I
• spending by business
firms
• G
• Federal
• State
• Local

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

5. Consumption – Durable Goods
durable goods include goods such as cars, large appliances and other goods
that last awhile.

6. Consumption – Nondurable Goods
nondurable goods are goods that consumers buy but don’t last such as
food, clothing, and other goods

7. Consumption – Services
services include intangible items such as haircuts, education, medical
care and legal services (shown below)

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

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

10. Investment – Does Not Include
Investment spending does not include spending on stocks or bonds.

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

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

13. 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.

14. Net Exports
Net Exports = exports – imports
Nx = X - M
Exports are goods we produce and sell to the rest of the world
Imports are goods that are produced elsewhere which we buy

15. GDP