Final answer:
Gross Domestic Product (GDP) measures the total value of goods and services produced within a country's borders. On the demand side, the components of GDP are consumer spending (consumption), business spending (investment), government spending on goods and services, and spending on net exports.
Step-by-step explanation:
Gross Domestic Product (GDP) measures the total value of goods and services produced within a country's borders. On the demand side, the components of GDP are consumer spending (consumption), business spending (investment), government spending on goods and services, and spending on net exports. Here are examples of each component:
1. Consumption: This refers to the spending by individuals and households on goods and services. It is the largest component of GDP, usually accounting for about two-thirds of the total. Examples include buying groceries, paying for healthcare services, and purchasing new clothes.
2. Investment: This involves spending by businesses on capital goods, such as machinery, equipment, and buildings, to produce goods and services. Investment is volatile and fluctuates more than consumption. Examples include companies buying new manufacturing equipment, constructing new office buildings, or investing in research and development.
3. Government spending: This includes all spending by the government on goods and services. It can include expenditures on public infrastructure, defense, education, healthcare, and more. Government spending typically accounts for about 20% of GDP. Examples include government salaries, construction of public schools or hospitals, and military expenditures.
4. Net exports: This represents the difference between a country's exports (goods and services sold to other countries) and imports (goods and services purchased from other countries). If a country exports more than it imports, it has a trade surplus, which adds to GDP. If imports exceed exports, there is a trade deficit, which subtracts from GDP.
It's important to note that the relative size of each component can vary over time and between countries. For example, consumption tends to be the largest component in most economies, while the role of net exports can vary depending on a country's trade patterns.