GDP can be computed as spending or as income.
GDP is equal to the total market value of all final goods and services produced
by labor and property in an economy in a given year.
Personal consumption expenditures
(C) are goods and services purchased by
residents of the United States, both by individuals and businesses.
Gross private domestic investment
(I) refers to expenditures for fixed
investments such as structures, equipment, and software.
GDP is equal to consumer expenditures (C), investment expenditures (I),
government purchases (G), and exports minus imports (X – M).
form, it is written as:
GDP = C + I + G + (X – M).
GDP can also be computed by adding all of the payments to the factors of
These payments include compensation to employees, proprietors’
income, corporate profits, rental income, and net interest, plus two adjustments
(depreciation and indirect business taxes).
While not perfect, GDP is a good measure of economic activity of an economy.