HAT Manifesto Part 1/3 - Rubric Cube - 250803 edit

 

Mostly summarized from Gregory Mankiw’s Principles of Economics, 5th Ed.

PART 8 The Data of Macroeconomics

Chapter 23 of 36 Measuring A Nation’s Income

Section 9 of 17

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Table 1 here

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Table 1 - GDP and Its Components

This table shows

· gross domestic product for the U.S. economy in 2007

· breakdown of GDP among its four components

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Per Table 1, GDP (Y) consists of four components

· consumption spending (C)

· investment spending (I)

· government purchases (G)

· net exports (NX)

The equation for GDP becomes Y = C + I + G + NX

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Consumption (C)

· household (non-business) spending on new final goods and services

· purchases of new housing are not included

Consumption goods include household spending on

· durable goods, e.g. automobiles and appliances

· nondurable goods, e.g. food and clothing

· services, e.g. haircuts, medical care, education

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Investment (I)

· is the purchase of goods and services to be used to produce more goods and services

· is the sum of purchases of capital equipment, inventories, and structures

· includes purchases of new housing

For GDP calculation when Dell produces a computer and adds it to its inventory instead of immediately selling it Dell is assumed to have purchased the computer for itself and is treated as part of Dell's investment spending.

When Dell later sells the computer from inventory its inventory investment will then be negative for this item, offsetting the previous positive expenditure.

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GDP accounting uses the word “investment” differently from how the term is mostly used in everyday use.

When one hears the word investment, one often thinks of financial investments, such as stocks and bonds.

In measurement of GDP investment means purchase of goods and services used to produce other goods and services.

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