Inflation and Price Level
GDP
Calculation (expenditure approach)
Consumption(C):
–The spending by households on goods and services, with the exception of purchases of new housing.
•Investment (I):
–The spending on capital equipment, inventories and structures, including household purchases of new housing.
•Government purchases (G):
–The spending on goods and services by local, state and federal governments.
–Does notinclude transfer payments because they are not made in exchange for currently produced goods or services.
•Net exports (NX):
–Exports minus imports.
Y= C+ I+ G+ NX
GDP= C+ I+ G + (X–M)
What is included and not included in GDP
Consumption
•Personal (household) Consumption Expenditure (C)
–Durable consumer goods
–Non-durable consumer goods
–Services
Investment
•Gross Private (Domestic) Investment (I)
•Final purchases of machinery, equipment and tools
•All building and construction
•Private—Not government
•Domestic—Not foreign
•Does not include financial investment or transfer of paper assets, e.g. buying of shares
Gross Private (Domestic) Investment (I)
•Two components:
•Fixed investment expenditures for newly produced capital goods
•Changes in private-sector inventories: net change in value of unsold finished products, unfinished products, and raw materials purchased by firms but as yet unused in production.
Government spends on ‘current’goods –the salaries of its workers and the inputs it consumes in government departments.
•It also spends on investment goods (often called infrastructure) such as highways, buildings and bridges.
•GDP does notinclude transfer paymentsfrom one level of government to another.
Net exports is the difference between the value of exports (X) and imports (M) (i.e. X-M), or NX
•Exports(X) are expenditures by foreigners on domestically produced goodsand services.
•Imports(M) are the dollar amount of a nation’s purchases from producers in other countries
Nominal GDP vs. Real GDP, convert using GDP
Calculation (expenditure approach)
Consumption(C):
–The spending by households on goods and services, with the exception of purchases of new housing.
•Investment (I):
–The spending on capital equipment, inventories and structures, including household purchases of new housing.
•Government purchases (G):
–The spending on goods and services by local, state and federal governments.
–Does notinclude transfer payments because they are not made in exchange for currently produced goods or services.
•Net exports (NX):
–Exports minus imports.
Y= C+ I+ G+ NX
GDP= C+ I+ G + (X–M)
What is included and not included in GDP
Consumption
•Personal (household) Consumption Expenditure (C)
–Durable consumer goods
–Non-durable consumer goods
–Services
Investment
•Gross Private (Domestic) Investment (I)
•Final purchases of machinery, equipment and tools
•All building and construction
•Private—Not government
•Domestic—Not foreign
•Does not include financial investment or transfer of paper assets, e.g. buying of shares
Gross Private (Domestic) Investment (I)
•Two components:
•Fixed investment expenditures for newly produced capital goods
•Changes in private-sector inventories: net change in value of unsold finished products, unfinished products, and raw materials purchased by firms but as yet unused in production.
Government spends on ‘current’goods –the salaries of its workers and the inputs it consumes in government departments.
•It also spends on investment goods (often called infrastructure) such as highways, buildings and bridges.
•GDP does notinclude transfer paymentsfrom one level of government to another.
Net exports is the difference between the value of exports (X) and imports (M) (i.e. X-M), or NX
•Exports(X) are expenditures by foreigners on domestically produced goodsand services.
•Imports(M) are the dollar amount of a nation’s purchases from producers in other countries
Nominal GDP vs. Real GDP, convert using GDP