GDP: worked example
| Consumption (C) | $15,000 |
|---|---|
| Investment (I) | $4,000 |
| Government spending (G) | $4,000 |
| Exports (X) | $2,500 |
| Imports (M) | $3,200 |
| Gross domestic product | $22,300 |
| Net exports (X − M) | -$700 |
GDP: formula
Common error: Counting government transfers such as pensions as government spending. They move money between people and buy nothing themselves, so they enter later, as consumption.
The expenditure approach adds consumption (household spending), investment (business capital spending, residential construction and inventory changes), government spending on goods and services, and net exports, which is exports minus imports. Use one consistent unit and one period, such as billions of dollars for a quarter. Transfer payments like Social Security and the purchase of existing assets are not counted as government spending or investment.
GDP: changing Consumption (C)
| Consumption (C) | Gross domestic product | Net exports (X − M) |
|---|---|---|
| $12,000 | $19,300 | -$700 |
| $13,500 | $20,800 | -$700 |
| $15,000 (example) | $22,300 | -$700 |
| $16,500 | $23,800 | -$700 |
| $18,000 | $25,300 | -$700 |
GDP: compare input ranges
| Input | Tested from | To | Gross domestic product: low input | Gross domestic product: high input | Swing |
|---|---|---|---|---|---|
| Consumption (C) | $13,500 | $16,500 | $20,800 | $23,800 | $3,000 (13%) |
| Investment (I) | $3,600 | $4,400 | $21,900 | $22,700 | $800 (3.6%) |
| Government spending (G) | $3,600 | $4,400 | $21,900 | $22,700 | $800 (3.6%) |
| Imports (M) | $2,880 | $3,520 | $22,620 | $21,980 | $640 (2.9%) |
| Exports (X) | $2,250 | $2,750 | $22,050 | $22,550 | $500 (2.2%) |
GDP: individual input comparisons
| Input | Value | Gross domestic product | Net exports (X − M) |
|---|---|---|---|
| Consumption (C) | $12,000 | $19,300 | -$700 |
| $13,500 | $20,800 | -$700 | |
| $15,000 | $22,300 | -$700 | |
| $16,500 | $23,800 | -$700 | |
| $18,000 | $25,300 | -$700 | |
| Investment (I) | $3,200 | $21,500 | -$700 |
| $3,600 | $21,900 | -$700 | |
| $4,000 | $22,300 | -$700 | |
| $4,400 | $22,700 | -$700 | |
| $4,800 | $23,100 | -$700 | |
| Government spending (G) | $3,200 | $21,500 | -$700 |
| $3,600 | $21,900 | -$700 | |
| $4,000 | $22,300 | -$700 | |
| $4,400 | $22,700 | -$700 | |
| $4,800 | $23,100 | -$700 | |
| Exports (X) | $2,000 | $21,800 | -$1,200 |
| $2,250 | $22,050 | -$950 | |
| $2,500 | $22,300 | -$700 | |
| $2,750 | $22,550 | -$450 | |
| $3,000 | $22,800 | -$200 | |
| Imports (M) | $2,560 | $22,940 | -$60 |
| $2,880 | $22,620 | -$380 | |
| $3,200 | $22,300 | -$700 | |
| $3,520 | $21,980 | -$1,020 | |
| $3,840 | $21,660 | -$1,340 |
GDP: combined input changes
| Consumption (C) / Investment (I) | $3,200 | $4,000 | $4,800 |
|---|---|---|---|
| $12,000 | $18,500 | $19,300 | $20,100 |
| $13,500 | $20,000 | $20,800 | $21,600 |
| $15,000 | $21,500 | $22,300 | $23,100 |
| $16,500 | $23,000 | $23,800 | $24,600 |
| $18,000 | $24,500 | $25,300 | $26,100 |
GDP: which assumptions move the result?
GDP: values and definitions
| Quantity and definition | Value used |
|---|---|
| Consumption (C) — Household spending, in the same unit as the other lines, such as billions. | $15,000 |
| Investment (I) — Business investment, home building and inventory change. | $4,000 |
| Government spending (G) — Government purchases of goods and services. Transfer payments are left out. | $4,000 |
| Exports (X) | $2,500 |
| Imports (M) | $3,200 |
| Gross domestic product | $22,300 |
| Net exports (X − M) | -$700 |
GDP: half and double Consumption (C)
| Consumption (C) | Gross domestic product |
|---|---|
| $7,500 | $14,800 |
| $15,000 | $22,300 |
| $30,000 | $37,300 |
GDP leaves out unpaid work, the informal economy and the distribution of income, and it counts spending on repairs after disasters as output. Nominal GDP mixes growth with inflation, so real GDP is used for growth. Imports are subtracted because they are included in the other categories but are not domestic production.
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Gross domestic product adds up what an economy spends on final goods and services in a year. Households consume, businesses invest, governments buy, and the country sells to and buys from the rest of the world. The trade line is exports minus imports, so it can pull the total down.
Here it removes 700 from 23,000 of domestic demand, leaving 22,300.
Keep all five lines in the same unit and the same year's prices. A mix of billions and trillions, or of two different years, gives a total that means nothing.
Use the inflation and percentage change calculators to convert nominal to real, and see the CAGR calculator for growth rates over several years. The unit conversion pages help when data comes in different scales. For company-level analysis, the profit and return pages apply instead.
What counts in GDP?
The market value of final goods and services produced within a country in a period, not intermediate goods, used goods, financial transfers or unpaid household work.
What is the difference between nominal and real GDP?
Nominal GDP uses current prices, so it rises with inflation. Real GDP is adjusted for price changes and shows actual growth in output.
Why are imports subtracted?
Because consumption, investment and government spending include purchases of imported goods, which are not domestic production, so imports are removed to avoid overstating GDP.