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To calculate the gross domestic product, one adds the components of the economy which include the measure of all the goods and services produced in that nation.
Most of the goods and services produced in a nation are purchased locally by consumers. This makes the largest component and most stable of the economy as it is the consumer spending (C) in the United States (Brezine 168). Obtaining of consumer spending is by adding together non-durable for instance foods and durable for instance automobiles goods. The services will include mechanic, barber and medical services.
The next component is the investments made by industries and businesses (I). When calculating the GPD, investment refers to purchases made by the industries in new production facilities or also the processes of buying new capital and putting it into use e.g. building of new factories, buying of a new truck and purchasing new software (Mankiw 201). In essence, this means that the factories reproduce as they buy new goods and services that will lead to production of more goods and services.
The next component for calculating the GDP is calculating the net export which is the difference between all values of exports and the values of all imports. Exports are the goods and services that are produced internally in a nation but are sold to the foreigners. Imports are services and goods that have been produced by foreigners but are sold domestically (Mankiw 203). If the exports of a certain year exceed the imports then the GPD will increase, and if this is the opposite, the GPD will decrease.
The final component used is the government expenditure. The government buys goods and services using the tax money. The goods and services purchases are a measure of the goods and services produced. Examples of government expenditure will include hiring of the civil servants and construction of roads and public buildings (Sugimoto 225). Government expenditure does not incorporate any transfer payments such
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