3.Likewise, Walmart’s ability to sell Dell’s computers is another source of U.S. value added. Walmart is not making anything in a factory, but its ability to buy goods at wholesale prices and sell those goods at higher retail prices reflects its added value and consequently, its contribution to U.S. GDP.
Expenditure Approach●Expenditure-based accounting sums up the purchases of goods and services by different groups or categories. ●There are five main categories:1.Consumption goods and consumption services bought by domestic households (C)a.This consumption includes everything from Frisbees to foot massages. b.Includes all consumption expenditure except expenditures that are made on residential construction, which is part of investment expenditure. 2.New physical capital (investment) bought by domestic households and domestic firms (I)a.Technically called private investment but is usually referred to as investment. b.i.e. houses, business inventories, business structures and business equipmentc.An economists investment does NOT refer to buying items like stocks and bonds.
3.Government expenditures on goods and services (G)a.Military equipment, bridges, national monuments, police services, fire department, national parks, schools, infrastructure are examples of government expenditure. b.Government expenditures excludes transfer payments and interest paid to government debt. They are excluded because they represent payments to other agents who will use this money to buy goods and services. This avoids double counting. 4.Exports of goods and services produced domestically and sold abroad (X)a.This is the market value of all domestically produced goods and services that are sold to households, firms, an governments in foreign countries. 5.Imports of goods and services produced abroad and sold to domestic households, firms, and governments (M)a.This is the market value of all foreign-produced goods and services that are sold to domestic households, firms and governments. b.Note:Imports overlap with the first 3 categories. ●Thus, the expenditure approach measures GDP by using data on the following national expenditures:I. consumption expenditureII. investment expenditureIII. government expenditureIV. ExportsV. Imports
●GDP = consumption spending (C) + Investment spending (I) + Government purchases (G) + Exports (X) - Imports (M)●The above GDP equation shows that the market value of domestic production is equal to the total expenditure of domestic agents (C+I+G), plus the expenditure of foreign agents on exports (X) minus the value of domestic expenditure that was imported (M)
Expenditures Not in GDPSecond hand transactions ●Expenditure on used goods is not part of GDP because these goods were part of GDP in the period in which they were produced and during which time they were new goods.
○Sales commission on secondhand transactions are included in GDPNonproductive Financial Transactions ●GDP does not count purely private or public financial transactions i.e. giving private gifts, buying and selling stocks and bonds and making transfer payments.