Famous Economic Formula

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Presentation transcript:

Famous Economic Formula GDP= C+I +G+(X-M) C= Personal Consumption expenditures (consumer spending). This includes all durable goods (a lifetime of more than one year), non-durable goods ( a lifetime of less than one year), and services.

I I = Gross Investment. This is the total value of all capital goods produced in a given nation during one year. Economists divide gross investment into two subcategories: A. Fixed investment (Building, machinery, equipment) B. Inventory investment (raw materials, intermediate goods, final goods)

G, X, M G = Government purchases. This is the dollar amount that federal, state, and local governments spend on things like highways, education, defense, etc. X = Net Exports. This is the value of goods and services produced domestically but sold in other countries. M = Net Imports. This is the value of goods and services produced in other countries, but bought domestically.

Using the figures for 1995, calculate the GDP for that year. 1995: C=4.9 I =1.1 G=1.4 X-M= -.1 7.3 billion