GDP composition

For some reason I’m having difficulties with GDP composition (investments, consumption, etc). I’d appreciate if someone could explain.

GDP=Investment+Consumption+Government Spending+Exports-Imports This is a macro economic view of the economy. The pieces of the puzzle are related too. For example, if government increases their spending that may spur job growth which will give consumers more money to spend which will could lead to business to invest more to satisfy consumption but this could also increase imports, which will lower their GDP. I don’t know what kind of explaination you’re looking for. Help us help you :wink:

marat, what exactly are you struggling with? Any particular points you’re missing?

I don’t understand the equation.

This is probably too simplistic and general view of the economy, but it might help you start thinking about things. So think about what are the different sectors in the economy, what are the sources of demand for product in the economy? First, you have the people who sell their skills on the labor market and with the wages they receive, they purchase goods and services (haircuts, cars, groceries, etc.) So that’s C (consumption). Then you have the private companies, who produce things. They need factors of production to produce their final product (they need machinery and equipment, etc.). So that’s I (Investment). Then you have the government who subsidize public goods, pay government workers, etc. That’s G (government expenditure). Also, countries trade with the world. Exports increase aggregate demand, while imports decrease it (since we have foreigners producing goods/services we domestically consume). Therefore, you need to add NET exports. I’m not sure if this helps you any, but it’s a very general overview of things. Perhaps we can drill down to specific expenses/questions if you want.

Lola, that was exactly what I needed to hear. Great explanation!

Easy to understand.