Measuring a Nation’s Income

Investment (I)

• Investment, I
• Total spending on (capital) goods that will be used to produce more goods in following period (typically by firms)
• Business capital: business structure (factory), equipment, and intellectual property product
• Residential capital: landlord’s apartment building; a homeowner’s personal residence
• Inventory accumulations: goods produced but not yet sold (interpret "the producer purchased")

* “Investment” does not mean the purchase of financial assets like stocks or bonds.

Government Purchases (G)

• Government purchases (G)
• All spending on the goods and services purchased by the government
• At all levels (including local governments)
• Excludes transfer payments
• Such as social security or unemployment insurance benefits.
• They are not purchases of goods or services

Net Exports (NX)

• Net exports, NX = exports – imports
• Exports: foreign spending on the goods and services produced in this country
• Imports: spending by domestic residents on the goods and services produced abroad
• The portions of C, I, and G which are spent on (imported) goods and services produced abroad

The Components of GDP

• Why Net Exports is in the identity equation (rather than Exports)?
• Other components of GDP (C, I, G) include imported goods and services
• Y = C + I + G + NX

= (Cd+Cimp) + (Id + Iimp) + (Gd+Gimp) + NX

= Cd + Id + Gd + Exports

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U.S. GDP and Its Components, 2015