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By the end of this section, you will be able to:

  • Identify the components of GDP on the demand side and on the supply side
  • Evaluate how gross domestic product (GDP) is measured
  • Contrast and calculate GDP, net exports, and net national product

Macroeconomics is an empirical subject, so the first step toward understanding it is to measure the economy.

How large is the U.S. economy? The size of a nation’s overall economy is typically measured by its gross domestic product (GDP)    , which is the value of all final goods and services produced within a country in a given year. The measurement of GDP involves counting up the production of millions of different goods and services—smart phones, cars, music downloads, computers, steel, bananas, college educations, and all other new goods and services produced in the current year—and summing them into a total dollar value. This task is straightforward: take the quantity of everything produced, multiply it by the price at which each product sold, and add up the total. In 2014, the U.S. GDP totaled $17.4 trillion, the largest GDP in the world.

Each of the market transactions that enter into GDP must involve both a buyer and a seller. The GDP of an economy can be measured either by the total dollar value of what is purchased in the economy, or by the total dollar value of what is produced. There is even a third way, as we will explain later.

Gdp measured by components of demand

Who buys all of this production? This demand    can be divided into four main parts: consumer spending (consumption), business spending (investment), government spending on goods and services, and spending on net exports. (See the following Clear It Up feature to understand what is meant by investment.) [link] shows how these four components added up to the GDP in 2014. [link] (a) shows the levels of consumption, investment, and government purchases over time, expressed as a percentage of GDP, while [link] (b) shows the levels of exports and imports as a percentage of GDP over time. A few patterns about each of these components are worth noticing. [link] shows the components of GDP from the demand side. [link] provides a visual of the percentages.

(Source: http://bea.gov/iTable/index_nipa.cfm)
Components of u.s. gdp in 2014: from the demand side
Components of GDP on the Demand Side (in trillions of dollars) Percentage of Total
Consumption $11.9 68.4%
Investment $2.9 16.7%
Government $3.2 18.4%
Exports $2.3 13.2%
Imports –$2.9 –16.7%
Total GDP $17.4 100%

Percentage of components of u.s. gdp on the demand side

This pie chart shows the percentage of components of U.S. GDP on the demand side as follows: Consumption: 68.4% Investment: 16.7% Government: 18.4% Exports: 13.2% Imports: −16.7%
Consumption makes up over half of the demand side components of the GDP. (Source: http://bea.gov/iTable/index_nipa.cfm)

What is meant by the word “investment”?

What do economists mean by investment, or business spending? In calculating GDP, investment does not refer to the purchase of stocks and bonds or the trading of financial assets. It refers to the purchase of new capital goods, that is, new commercial real estate (such as buildings, factories, and stores) and equipment, residential housing construction, and inventories. Inventories that are produced this year are included in this year’s GDP—even if they have not yet sold. From the accountant’s perspective, it is as if the firm invested in its own inventories. Business investment in 2014 was almost $3 trillion, according to the Bureau of Economic Analysis.

Questions & Answers

what is trade
PHILIPPE Reply
Trade is a basic economic concept involving the buying and selling of goods and services, with compensation paid by a buyer to a seller, or the exchange of goods or services between parties. Trade can take place within an economy between producers and consumers.
Miss
what is fisical policy?
ha Reply
fisical policy or fiscal policy?
Miss
..
Jacob
what are.the characteristics of economic goods
Hamis
what are the importance of labour market?
Rachael
how discrib the rural development and their four stages
Sheikh Reply
bro History ka question yahaan nhi puchne ka 🤣
Tenzin
ye economics se related ha
Sheikh
1..traditional stage..no science and technology is applied hence poor productionuu.2..the take off stage..some development strategies are initiated eg transport system is improved but the traditional cultural belief still remain .3..the prematurely stage..technological methods of production are appl
President
applied leading to higher GDP..4..stage of mass consumption..
President
What is Easiest Formula For National Income?
Tenzin Reply
national income/ agrrigate net value
Sheikh
what do you mean by the supply of goods
sachin Reply
supply of good refer to the total unit of production which is ready to sell at a given price
Tenzin
what is implicit cost
fuseini Reply
Yeah
MOHAMED
any cost that has already occurred but not necessarily shown or reported as a separate expense.
President
The links don't seem to be working
Scorch Reply
what is taxonomy
wise Reply
how to interprets elasticity
Joseph Reply
what is demand curve
Joseph
It is the graphical representation of quantity demand of a commodity?
Kofi
it is the graphical representation of price and quantity demanded of a commodity
Obaa
what is the difference between positive economics and normative economics.
pauline Reply
It said that positive economics studies the facts, but normative one focus on ought to be.
Mohammad
in another words normative economics focuses on what the fair situation is.
Mohammad
positive economics: wages are 10$ per hour. normative economics: wages should be 25$ per hour.
Mohammad
what is choice
Hamis Reply
what is indifference curve
Misba Reply
It is an alternative combination of consumption of two goods which gives equal level of satisfaction.
Shujjat
good morning guys.. I am Lawrence from Nigeria.. trust am welcome here..
Lawrence Reply
Lovely morning bro... Welcome 💕
Kosiso
ur most welcome lawrence
Kun
Welcome back to another session,happy Friday morning
Dumbuya
good morning guys I'm Oumar Kromah from Côte d'ivoire am I welcome here
Oumar
lovely morning bro welcome
Malak
i dont understand on economics
Noor
i m from pakistan
Noor
mashallah
Tanveer
I am from Nepal
OP
i m Pakistan
Malak
Am Gabriel from Ghana
Kwame
hmmm
Noor
are you ecnomist?
Noor
Am Eben Paak from Ghana
Eben
Okay.. Nice meeting us
Kosiso
l am James Borbor from Liberia
jackie
I am a researcher
jackie
you all are ecnomost
Noor
ohh nice
Noor
re search on economy
Noor
what is demand
Milton Reply
yes
Malak
Link seems to not work
Jayden Reply

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Source:  OpenStax, Principles of economics. OpenStax CNX. Sep 19, 2014 Download for free at http://legacy.cnx.org/content/col11613/1.11
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