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Understanding the Components of GDP for Economic Growth

Learn about the essential components of GDP (Gross Domestic Product) - consumption, investments, government purchases, and net exports, and how they impact the economy. Discover how GDP relates to the overall economic well-being and growth of a nation.

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Understanding the Components of GDP for Economic Growth

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  1. The Components of GDP (Gross Domestic Product) Tonya Blevins ECO2072 Summer 2011

  2. Index • Slide 1: Title • Slide 2: Index • Slide 3: Introduction • Slide 4: Consumption • Slide 5: Investments • Slide 6: Government purchases • Slide 7: Net Exports • Slide 8:How GDP relates to economics • Slide 9: Conclusion

  3. The Components of GDP • GDP measures market value of goods/services • GDP also measures income/expenditures • GDP is broken into four components: • Consumption • Investment • Government Purchases • Net Exports • Y=C+I+G+NX

  4. Consumption (C) • Spending by households on goods/services. • Can be durable or non-durable • Durable includes: appliances and automobiles • Non-Durables includes: food and clothing • Consumption excludes purchases of new housing • Intangible services include: medical care

  5. Investments(I) • The purchase of goods for future use. • The sum of equipment, inventories, and structures. • Includes the purchasing of new housing

  6. Government Purchases (G) • Spending on goods/services by federal, local, and state government. • Includes the following: • Salaries of government workers • Expenditures on public works

  7. Net Exports (NX) • Domestically produced goods by foreigners (exports). • Foreign goods by domestic residents (imports)

  8. How GDP relates to Economy? • Y=C+I+G+NX calculates growth of the economy in the United States • From 1965-2010 GDP increased 3% per year. • Periods of declination = recession (figure 2, pg 503) • Recession = unemployment & bankruptcy • Higher GDP = better way of life

  9. Conclusion • GDP measures goods/services produced in the nation. • Goods/services measured during given time period. • Also measure Total income/Total Expenditures • Four Components: • Y=C+I+G+NX • Higher GDP = better way of life

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