Expenditure Approach to Calculating GDPThe expenditure approach calculates GDP by summing the four possible types of expenditures as follows:
Consumption is the largest component of the GDP. In the U.S., the largest and most stable component of consumption is services. Consumption is calculated by adding durable and non-durable goods and services expenditures. It is unaffected by the estimated value of imported goods. Investment includes investment in fixed assets and increases in inventory. Government purchases are equal to the government expenditures less government transfer payments (welfare, unemployment payouts, etc.) Net exports are exports minus imports. Imports are subtracted since GDP is defined as the output of the domestic economy.
Alternative Approaches to Calculating GDP There are three approaches to calculating GDP:
These three approaches are equivalent, with each rendering the same result.
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