Gross Domestic Product Components

This section talks about various components of Gross Domestic Product. There will be a separate read  on this topic ahead.

Consumption

Do you know — In the United States, unpaid labor in the US amounted to $4.5 trillion in 2017.

Private Domestic Investment

Private Domestic Investment includes business fixed investment, residential fixed investment and change in inventory. In the video understand the concept of imputed prices.

Remember used products do not count towards GDP as their value is already counted for during the year they were produced.

Concept Check 

ABC buys a vintage house from another buyer. Does this lead towards GDP?

No. The GDP has already been accounted for when the house was constructed.

 

ABC build a new house? Has GDP increased?

Yes

 

ABC inventory in 2019 is 100 units, the inventory in 2018 was 80 units. If each unit costs $100, what is the size and cost of inventory recorded in 2019 GDP keeping other variables constant ? ABC inventory in 2019 is 100 units, the inventory in 2018 was 80 units. If each unit costs $100, what is the size and cost of inventory recorded in 2019 GDP keeping other variables constant?

The cost of inventory recorded will be the change in the inventory stock * cost of each unit

= ( 100 – 80) * 100 = $2000

Government purchases are divided into federal, state and local.  In the video we understand that transfer payments example social security and welfare are not part of the GDP.

Net Export = Exports – Imports

Consider a simple case where there are only two countries A and B and they export and import to each other.