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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

Demand is set to be enlastic when its what
bohvy Reply
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a little
I do speak English.. the question is Demand is set to be elasticity went the dash *2
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why is scarcity a fundamental problem in economic
Abubakar Reply
what is demand curve
Takyi Reply
thanks for your help with the same....
What is elasticity of demand
what is opportunity cost
Samuel Reply
Opportunity cost which also mean real cost it is a term used for foregone alternatives
what is demand
ikea Reply
Demand may simply be define as the total quantity of good or service a consumer are willing to buy at a specific price within a period of time.
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techy Reply
How economics is related to other subjects?
Mikateko Reply
It is social science related subjects
How ? explain
and something else help me about business cycle
s classified as a social science. This view makes eco­nomics an academic relative of political science, sociology, psychology and anthropology. All of these disciplines study the behaviour of human beings individually and in groups.
The business cycle describes the rise and fall in production output of goods and services in an economy. Business cycles are generally measured using the rise and fall in the real gross domestic product (GDP) or the GDP.
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How are you doing every one
hello Selena
What Is Economic Growth?
Saviour Reply
is the increase of quantity of goods ans services
what is economic
Yomina Reply
Economic may be define as the science which studies human behaviour in relationship with end and scarce which have alternative use. This definition was drafted by Lionel robbin
it is science of wealth.
if I want some documents from you ,Are you ok?
it is not only wealth as well as welfare also.as well as scarce means of ends,for human satisfaction for alternative uses.
economics applications
who should study economics
Mary Reply
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sorry, fine
and you?
where do you live?
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what's the difference between elasticity and demand
Rich Reply
if country had a potential full employment income of Rs 1000 and following consumption and investment function C=0.75 y=50,I=150.find the level of government expenditure necessary to maintain full employment
Vijay Reply
what is China's economy
the meaning of elasticity
Yawe Reply
when equilibrium is égal to 1
The tendency to change consumption habits with change in price
The type of elasticity if demand
Okonkwo Reply
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I don't understand
Price elasticity of demand cross elasticity of demand income elasticity of demand
what is money
Lawal Reply
what is supply
the total number of goods present at a particular area at a particular time

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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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