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    The Four Components of Gross Domestic Product

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    List the four components of GDP and provide an example of each, explaining how each item affects you and the way that you live today.

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    Solution Preview

    Rousse (2008) identified the four components of Gross Domestic Product (GDP) as:
    1. Personal consumption expenditures (C)
    2. Gross private domestic investment (I)
    3. Government consumption and gross investment (G)
    4. Net exports to foreigners (NX) on Exports less Imports

    These components can be displayed in this equation:
    Y=C+I+G+NX , where Y is the GDP.

    Personal consumption expenditures is composed of a.) durable goods, nondurable goods, and services.
    Durable goods are goods that can be stored within a considerable period of time. Examples are car, electric dishwasher, freezer, computers.

    Non-durable goods are items that have shorter life span. These are products that cannot be stored for a long time. A common example is the groceries we consume at home. Other non-durable goods are newspapers and magazines.

    Services are non-tangible consumptions like the amenities offered in a hotel, the ride from home to work, massage, among others.

    The gross private investment is generally broken down into ...

    Solution Summary

    This solution identifies and describes the four components of Gross Domestic Product (GDP).

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