Economy Calcuation

From Nova

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Revision as of 13:28, 13 December 2007

GDP

The components of GDP

Each of the variables C, I, G and NX (where GDP = C + I + G + (X-M) as above):

(Note: * GDP is sometimes also referred to as Y in reference to a GDP graph)

• C is private consumption in the economy. This includes most personal expenditures of households such as food, rent, medical expenses and so on but does not include new housing.
• I is defined as business investments in capital. Examples of investment by a business include construction of a new mine, purchase of software, or purchase of machinery and equipment for a factory. Spending by households on new houses is also included in Investment. Unlike general meaning, 'Investment' in GDP is meant very specifically as non-financial product purchases. Buying financial products is classed as 'saving', as opposed to investment. The distinction is (in theory) clear: if money is converted into goods or services, it is investment; but, if you buy a bond or a share of stock, this transfer payment is excluded from the GDP sum. Although such purchases would be called investments in normal speech, from the total-economy point of view, this is simply swapping of deeds, and not part of the real economy or the GDP formula.
• G is the sum of government expenditures on final goods and services. It includes salaries of public servants, purchase of weapons for the military, and any investment expenditure by a government. It does not include any transfer payments, such as social security or unemployment benefits.
• X is gross exports. GDP captures the amount a country produces, including goods and services produced for overseas consumption, therefore exports are added.
• M is gross imports. Imports are subtracted since imported goods will be included in the terms G, I, or C, and must be deducted to avoid counting foreign supply as domestic.