The Components of Gross Domestic Product (GDP)

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According to the U.S. Bureau of Economic Analysis, the gross domestic product (GDP) is "the market value of the goods and services produced by labor and property located in the United States." The GDP is the broadest measure of economic activity that businesses and policymakers use to determine the direction of the overall economy. The GDP comprises four components.

Personal Consumption

Personal consumption expenditures include durable goods, which are items that last more than three years; nondurable goods, such as food and clothing; and services that U.S. residents purchase. This component consists mainly of purchases of new items by individuals from businesses. It also includes purchases of goods and services by nonprofit organizations and certain government-provided services, such as utilities and medical care.

Private Investments

Private domestic investments include fixed investments and the change in business inventories. Fixed investments consist of residential investment in single family and multifamily homes and nonresidential investment in plants and equipment. Investments by U.S. residents in foreign countries are excluded from the calculation. The change in business inventories is considered a form of investment, because it is the change in the physical volume of goods purchased by private businesses for resale or for producing other goods and services.

Net Exports

Also known as the trade balance, the net exports of goods and services is the exports minus the imports. U.S. exports include manufactured goods, technology products, agricultural products and services. Imports include petroleum-based products, technology components and automobiles. The United States is usually in a trade deficit position, meaning that imports are greater than exports. China is usually in a trade surplus position because its exports are greater than its imports.

Government Expenditures

Government expenditures include net purchases of goods, services and fixed assets by government agencies from U.S. and foreign businesses; employee compensation; and purchases of fixed assets by and changes in inventories of government enterprises. Transfer payments (e.g., Social Security and unemployment benefits), interest paid or received on outstanding debt and subsidies are excluded from the calculation. The government expenditures component is significantly less than the private consumption component of GDP.

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