Question

Gross Domestic Product is divided into four categories which when added together help economists and politicians determine whether the economy is growing or shrinking. GDP Formula: GDP = C + I + G + [X-M or exports– imports] Total expenditure on final goods and services is broken down into four large expenditure categories. These four expenditure categories are: C = Consumption: Consumption includes the purchases of goods and services. Including personal services: like lawn maintenance, pest control, hairstyling, doctors, lawyers, and mechanics. The sale of used items is not included in GDP. I = Investment expenditures: Investment includes business purchases of new equipment, factories, and increases in inventories. Inventory is considered an investment because resources were used to produce the items during the current year. If we see an increase in several company’s inventory it may be an indication that the economy is slowing down. Consumers only invest if they purchase a new home. G = Government expenditures: Governments purchase goods and services and pay salaries to employees and military personnel. Governments also construct roads and public buildings. Social security, welfare, and other “transfer payments” are not included in GDP calculations. (X-M) = Net exports: Exports are goods and services produced in the US but sold to foreigners, while imports are goods and services produced by foreigners but sold in the US. The purchase of imports needs to be subtracted from GDP because we are only interested in the items being produced in the US. GDP DOES NOT INCLUDE: The sale of used products. [A salesman’s commission for selling a used item does count toward consumption.] Transfer payments (welfare/social security/unemployment compensation) Purely financial transactions [the sale of stocks, bonds, CDs – but the broker’s fees do count toward consumption] Intermediate Goods (this avoids double counting) U.S. Corporations producing products overseas Non-market transactions (household or volunteer w

Answer 1

Gross Domestic Product (GDP) is divided into four categories: Consumption (C), Investment (I), Government expenditures (G), and Net exports ([X-M] or exports - imports). These categories help determine the growth or shrinkage of the economy.

The subject of this question is Social Studies. The question is asking about the four categories that make up Gross Domestic Product (GDP) and how they help economists and politicians determine whether the economy is growing or shrinking.

The four categories are:

Consumption (C): Includes the purchases of goods and services by individuals, such as lawn maintenance and doctors' visits.

Investment (I): Includes business purchases of new equipment and increases in inventories.

Government expenditures (G): Includes purchases of goods and services by the government, as well as salaries to employees and military personnel.

Net exports ([X-M] or exports - imports): The difference between the value of goods and services produced in the US and sold to foreigners (exports) and the value of goods and services produced by foreigners and sold in the US (imports).

By adding these four categories together, economists and politicians can analyze the different components of demand and determine the overall growth or decline of the economy based on changes in each category over time.