{"id":6415,"date":"2017-06-12T06:49:19","date_gmt":"2017-06-12T06:49:19","guid":{"rendered":"https:\/\/courses.lumenlearning.com\/hccs-macroeconomics-3\/?post_type=chapter&#038;p=6415"},"modified":"2017-08-07T16:23:57","modified_gmt":"2017-08-07T16:23:57","slug":"gross-domestic-product-definition-and-calculation","status":"publish","type":"chapter","link":"https:\/\/courses.lumenlearning.com\/hccs-macroeconomics-3\/chapter\/gross-domestic-product-definition-and-calculation\/","title":{"raw":"Gross Domestic Product - Definition and Calculation","rendered":"Gross Domestic Product &#8211; Definition and Calculation"},"content":{"raw":"<h2>Measuring economic activity.<\/h2>\r\n<table style=\"width: 850px\">\r\n<tbody>\r\n<tr>\r\n<td style=\"width: 400px;vertical-align: top\">&nbsp;\r\n\r\nThe Gross Domestic Product is an economic indicator that helps us evaluate the size of an economy and its growth over time.\r\n\r\nIt also provides an estimate for the standard of living and the average income in a country with the Gross Domestic Product per Capita (per person).\r\n\r\nThe measurement of GDP involves counting up the production of millions of different goods and services\u2014smart phones, cars, music downloads, computers, steel, bananas, college educations, and all other new goods and services produced in the current year\u2014and summing them into a total dollar value. This task is straightforward: take the quantity of everything produced, multiply it by the price at which each product sold, and add up the total.<\/td>\r\n<td><a href=\"https:\/\/s3-us-west-2.amazonaws.com\/courses-images\/wp-content\/uploads\/sites\/1681\/2017\/06\/06201631\/GDP1.png\"><img class=\"aligncenter wp-image-6413\" src=\"https:\/\/s3-us-west-2.amazonaws.com\/courses-images\/wp-content\/uploads\/sites\/1681\/2017\/06\/06201631\/GDP1-300x242.png\" alt=\"\" width=\"400\" height=\"323\" \/><\/a><\/td>\r\n<\/tr>\r\n<\/tbody>\r\n<\/table>\r\n<div class=\"textbox\"><strong>The <em>gross domestic product<\/em> (GDP)\u00a0is the value of all final goods and services produced within a country in a given year.<\/strong><\/div>\r\n<iframe style=\"overflow: hidden;width: 770px;height: 400px\" src=\"\/\/fred.stlouisfed.org\/graph\/graph-landing.php?g=e3cb&amp;width=670&amp;height=375\" width=\"750\" height=\"375\" frameborder=\"0\" scrolling=\"no\"><\/iframe>\r\n\r\nEach of the market transactions that enter into GDP must involve both a buyer and a seller. The GDP of an economy can be measured either by the total dollar value of what is purchased in the economy, or by the total dollar value of what is produced.\r\n<h2>What is counted in Gross Domestic Product<\/h2>\r\nTo be counted in the Gross Domestic Products, goods and services have to follow the 4 requirements below:\r\n<table class=\"lines alignleft\" style=\"width: 820px\">\r\n<tbody>\r\n<tr style=\"height: 53px\">\r\n<td style=\"width: 410px;height: 53px;text-align: left;vertical-align: top\">\r\n<h4 style=\"text-align: center\">Included<\/h4>\r\n<\/td>\r\n<td style=\"text-align: center;height: 53px\">\r\n<h4>Not Included<\/h4>\r\n<\/td>\r\n<\/tr>\r\n<tr style=\"height: 290px\">\r\n<td style=\"vertical-align: top;height: 290px\"><strong><span style=\"text-decoration: underline\">1-Final<\/span> goods and services<\/strong>: \u00a0A final good or service is purchased by the final user\r\n\r\n[caption id=\"attachment_6449\" align=\"aligncenter\" width=\"150\"]<a href=\"https:\/\/s3-us-west-2.amazonaws.com\/courses-images\/wp-content\/uploads\/sites\/1681\/2017\/06\/12060708\/228646035_643e39a08b_z.jpg\"><img class=\"wp-image-6449 size-thumbnail\" src=\"https:\/\/s3-us-west-2.amazonaws.com\/courses-images\/wp-content\/uploads\/sites\/1681\/2017\/06\/12060708\/228646035_643e39a08b_z-150x150.jpg\" alt=\"\" width=\"150\" height=\"150\" \/><\/a> Computer = Final Product[\/caption]<\/td>\r\n<td style=\"height: 290px;vertical-align: top\"><strong>Intermediary goods:<\/strong> \u00a0Used to produce final goods. \u00a0If intermediary goods were included in GDP they would be counted twice, as they are reflected in the price or market value of the final product.\r\n\r\n[caption id=\"attachment_6450\" align=\"aligncenter\" width=\"150\"]<a href=\"https:\/\/s3-us-west-2.amazonaws.com\/courses-images\/wp-content\/uploads\/sites\/1681\/2017\/06\/12061339\/6500625219_4966a6ff53_m.jpg\"><img class=\"wp-image-6450 size-thumbnail\" src=\"https:\/\/s3-us-west-2.amazonaws.com\/courses-images\/wp-content\/uploads\/sites\/1681\/2017\/06\/12061339\/6500625219_4966a6ff53_m-150x150.jpg\" alt=\"\" width=\"150\" height=\"150\" \/><\/a> Computer parts = intermediary goods[\/caption]<\/td>\r\n<\/tr>\r\n<tr style=\"height: 75.3125px\">\r\n<td style=\"vertical-align: top;height: 75.3125px\"><strong><span style=\"text-decoration: underline\">2-Produced<\/span> goods and services<\/strong><\/td>\r\n<td style=\"height: 75.3125px\"><strong>Non-production transactions: \u00a0<\/strong>Monetary transfers or gifts and\u00a0Transfer payments, such as payment by the government to individuals, are not included, because they do not represent production. \u00a0monetary transfers or gifts.<\/td>\r\n<\/tr>\r\n<tr style=\"height: 45px\">\r\n<td style=\"height: 45px;vertical-align: top\"><strong>3-Produced <span style=\"text-decoration: underline\">domestically<\/span>: \u00a0T<\/strong>he goods or services have to be produced in the US, by whom does not matter.<\/td>\r\n<td style=\"vertical-align: top;height: 45px\"><strong>Imports<\/strong><\/td>\r\n<\/tr>\r\n<tr style=\"height: 45px\">\r\n<td style=\"vertical-align: top;height: 45px\"><strong>4-Produced<span style=\"text-decoration: underline\"> in a given year<\/span><\/strong><\/td>\r\n<td style=\"vertical-align: top;height: 45px\"><strong>Resale: \u00a0<\/strong>The sales of used goods are not included because they were produced in a previous year and are part of that year\u2019s GDP.<\/td>\r\n<\/tr>\r\n<\/tbody>\r\n<\/table>\r\n&nbsp;\r\n<h3>GDP Measured by\u00a0Expenditures<\/h3>\r\nWho buys all of this production? The Expenditures\u00a0can be divided into four main parts:\r\n<table class=\"lines alignleft\" style=\"width: 819px\">\r\n<tbody>\r\n<tr>\r\n<td class=\"shaded\" style=\"width: 398px;vertical-align: top\">\r\n<h4><strong>Consumption<\/strong><\/h4>\r\nPurchases of goods and services by households \/ consumers except new housing.\r\n\r\n<a href=\"https:\/\/s3-us-west-2.amazonaws.com\/courses-images\/wp-content\/uploads\/sites\/1681\/2017\/06\/13050316\/consumption.png\"><img class=\"size-medium wp-image-6458 aligncenter\" src=\"https:\/\/s3-us-west-2.amazonaws.com\/courses-images\/wp-content\/uploads\/sites\/1681\/2017\/06\/13050316\/consumption-300x109.png\" alt=\"\" width=\"300\" height=\"109\" \/><\/a><\/td>\r\n<td style=\"width: 399px;vertical-align: top\">\r\n<h4><strong>Gross Private Investments<\/strong><\/h4>\r\nPurchase of new capital goods by private businesses + inventory +\u00a0<span style=\"text-decoration: underline\">new residential housing<\/span>\r\n\r\nExamples include: \u00a0buildings, factories, stores and equipment, and inventories. \u00a0<a href=\"https:\/\/s3-us-west-2.amazonaws.com\/courses-images\/wp-content\/uploads\/sites\/1681\/2017\/06\/13052255\/3797111550_9893baf763_m.jpg\"><img class=\"alignright wp-image-6459 size-thumbnail\" src=\"https:\/\/s3-us-west-2.amazonaws.com\/courses-images\/wp-content\/uploads\/sites\/1681\/2017\/06\/13052255\/3797111550_9893baf763_m-150x150.jpg\" alt=\"\" width=\"150\" height=\"150\" \/><\/a>\r\n\r\nInventories that are produced this year are included in this year\u2019s GDP\u2014even if they have not yet sold. From the accountant\u2019s perspective, it is as if the firm invested in its own inventories.<\/td>\r\n<\/tr>\r\n<tr>\r\n<td style=\"width: 398px\">\r\n<h4>\u00a0<strong>Government Spending<\/strong><\/h4>\r\nSpending by all three levels of government: federal, state, and local, on goods or services produced in the economy. Examples include the government buying a new fighter jet for the Air Force (federal government spending), building a new highway (state government spending), or a new school (local government spending).\r\n\r\nTransfer payments, like unemployment benefits, veteran\u2019s benefits, and Social Security payments to retirees \u00a0are not included because they are monetary transfers not goods or services.<\/td>\r\n<td class=\"shaded\" style=\"vertical-align: top;width: 399px\">\r\n<h4><strong>Net Exports = Exports - Imports<\/strong><\/h4>\r\nSpending by the foreign sector on American goods and services (exports) minus spending on foreign goods by US <em>(<\/em>imports<em>).<\/em>\r\n\r\nThe gap between exports and imports is also called the <em class=\"glossterm\">trade balance<\/em>. \u00a0Currently, the United States has a negative trade balance or trade deficit.<\/td>\r\n<\/tr>\r\n<\/tbody>\r\n<\/table>\r\n&nbsp;\r\n<div class=\"textbox shaded\"><span style=\"background-color: #ffffff\"><strong>Gross Domestic Product = GDP = Consumption + Gross Private Investment +\u00a0\u00a0Government spending + Net Export = \u00a0<\/strong><\/span><span style=\"background-color: #ffffff\"><strong>GDP = C + Ig + G + Xn<\/strong> <\/span><\/div>\r\n<div>here<\/div>\r\n<table class=\"alignleft\" style=\"width: 840px\">\r\n<tbody>\r\n<tr style=\"height: 221px\">\r\n<td style=\"width: 375px;height: 221px;vertical-align: top\"><a href=\"https:\/\/s3-us-west-2.amazonaws.com\/courses-images\/wp-content\/uploads\/sites\/1681\/2017\/06\/10070018\/GDP-chart-bea-1.png\"><img class=\"aligncenter wp-image-6436\" src=\"https:\/\/s3-us-west-2.amazonaws.com\/courses-images\/wp-content\/uploads\/sites\/1681\/2017\/06\/10070018\/GDP-chart-bea-1-300x180.png\" alt=\"\" width=\"499\" height=\"300\" \/><\/a>\r\nFirst Quarter 2017<\/td>\r\n<td style=\"width: 375px;height: 221px;vertical-align: top\"><a href=\"https:\/\/s3-us-west-2.amazonaws.com\/courses-images\/wp-content\/uploads\/sites\/1681\/2017\/06\/10070441\/GDP-graph-bea-2.png\"><img class=\"wp-image-6437 alignnone\" src=\"https:\/\/s3-us-west-2.amazonaws.com\/courses-images\/wp-content\/uploads\/sites\/1681\/2017\/06\/10070441\/GDP-graph-bea-2-300x175.png\" alt=\"\" width=\"400\" height=\"234\" \/><\/a>\r\n\r\nFirst Quarter 2017<\/td>\r\n<\/tr>\r\n<tr style=\"height: 20px\">\r\n<td style=\"width: 300px;height: 20px;vertical-align: top\" colspan=\"2\">Bureau of Economic Analysis -\u00a0https:\/\/www.bea.gov\/iTable\/iTable.cfm?ReqID=9&amp;step=1#reqid=9&amp;step=3&amp;isuri=1&amp;903=6<\/td>\r\n<\/tr>\r\n<tr style=\"height: 34.5px\">\r\n<td style=\"width: 300px;height: 34.5px;vertical-align: top\" colspan=\"2\">Consumption is the largest component of GDP with 65% in the first quarter of 2017 and the most stable. Gross Private Investment is the most volatile and about 16%, similar to Government Spending. \u00a0Net Export is negative.<\/td>\r\n<\/tr>\r\n<\/tbody>\r\n<\/table>\r\n&nbsp;\r\n\r\nUnderstanding how to measure GDP is important for analyzing connections in the macro economy and for thinking about macroeconomic policy tools.\r\n<h3>HOW DO STATISTICIANS MEASURE GDP?<\/h3>\r\nGovernment economists at the Bureau of Economic Analysis (BEA), within the U.S. Department of Commerce, piece together estimates of GDP from a variety of sources.\r\n\r\nOnce every five years, in the second and seventh year of each decade, the Bureau of the Census carries out a detailed census of businesses throughout the United States. In between, the Census Bureau carries out a monthly survey of retail sales. These figures are adjusted with foreign trade data to account for exports that are produced in the United States and sold abroad and for imports that are produced abroad and sold here. Once every ten years, the Census Bureau conducts a comprehensive survey of housing and residential finance. Together, these sources provide the main basis for figuring out what is produced for consumers.\r\n\r\nFor investment, the Census Bureau carries out a monthly survey of construction and an annual survey of expenditures on physical capital equipment.\r\n\r\nFor what is purchased by the federal government, the statisticians rely on the U.S. Department of the Treasury. An annual Census of Governments gathers information on state and local governments. Because a lot of government spending at all levels involves hiring people to provide services, a large portion of government spending is also tracked through payroll records collected by state governments and by the Social Security Administration.\r\n\r\nWith regard to foreign trade, the Census Bureau compiles a monthly record of all import and export documents. Additional surveys cover transportation and travel, and adjustment is made for financial services that are produced in the United States for foreign customers.\r\n\r\nMany other sources contribute to the estimates of GDP. Information on energy comes from the U.S. Department of Transportation and Department of Energy. Information on healthcare is collected by the Agency for Health Care Research and Quality. Surveys of landlords find out about rental income. The Department of Agriculture collects statistics on farming.\r\n\r\nAll of these bits and pieces of information arrive in different forms, at different time intervals. The BEA melds them together to produce estimates of GDP on a quarterly basis (every three months). These numbers are then \u201cannualized\u201d by multiplying by four. As more information comes in, these estimates are updated and revised. The \u201cadvance\u201d estimate of GDP for a certain quarter is released one month after a quarter. The \u201cpreliminary\u201d estimate comes out one month after that. The \u201cfinal\u201d estimate is published one month later, but it is not actually final. In July, roughly updated estimates for the previous calendar year are released. Then, once every five years, after the results of the latest detailed five-year business census have been processed, the BEA revises all of the past estimates of GDP according to the newest methods and data, going all the way back to 1929.\r\n<div class=\"linkitup\">\r\n<h3>LINK IT UP<\/h3>\r\nVisit this <a class=\"link\" href=\"http:\/\/openstaxcollege.org\/l\/beafaq\" target=\"_blank\" rel=\"noopener noreferrer\">website<\/a> to read FAQs on the BEA site. You can even email your own questions!\r\n\r\n<\/div>","rendered":"<h2>Measuring economic activity.<\/h2>\n<table style=\"width: 850px\">\n<tbody>\n<tr>\n<td style=\"width: 400px;vertical-align: top\">&nbsp;<\/p>\n<p>The Gross Domestic Product is an economic indicator that helps us evaluate the size of an economy and its growth over time.<\/p>\n<p>It also provides an estimate for the standard of living and the average income in a country with the Gross Domestic Product per Capita (per person).<\/p>\n<p>The measurement of GDP involves counting up the production of millions of different goods and services\u2014smart phones, cars, music downloads, computers, steel, bananas, college educations, and all other new goods and services produced in the current year\u2014and summing them into a total dollar value. This task is straightforward: take the quantity of everything produced, multiply it by the price at which each product sold, and add up the total.<\/td>\n<td><a href=\"https:\/\/s3-us-west-2.amazonaws.com\/courses-images\/wp-content\/uploads\/sites\/1681\/2017\/06\/06201631\/GDP1.png\"><img loading=\"lazy\" decoding=\"async\" class=\"aligncenter wp-image-6413\" src=\"https:\/\/s3-us-west-2.amazonaws.com\/courses-images\/wp-content\/uploads\/sites\/1681\/2017\/06\/06201631\/GDP1-300x242.png\" alt=\"\" width=\"400\" height=\"323\" \/><\/a><\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n<div class=\"textbox\"><strong>The <em>gross domestic product<\/em> (GDP)\u00a0is the value of all final goods and services produced within a country in a given year.<\/strong><\/div>\n<p><iframe loading=\"lazy\" style=\"overflow: hidden;width: 770px;height: 400px\" src=\"\/\/fred.stlouisfed.org\/graph\/graph-landing.php?g=e3cb&amp;width=670&amp;height=375\" width=\"750\" height=\"375\" frameborder=\"0\" scrolling=\"no\"><\/iframe><\/p>\n<p>Each of the market transactions that enter into GDP must involve both a buyer and a seller. The GDP of an economy can be measured either by the total dollar value of what is purchased in the economy, or by the total dollar value of what is produced.<\/p>\n<h2>What is counted in Gross Domestic Product<\/h2>\n<p>To be counted in the Gross Domestic Products, goods and services have to follow the 4 requirements below:<\/p>\n<table class=\"lines alignleft\" style=\"width: 820px\">\n<tbody>\n<tr style=\"height: 53px\">\n<td style=\"width: 410px;height: 53px;text-align: left;vertical-align: top\">\n<h4 style=\"text-align: center\">Included<\/h4>\n<\/td>\n<td style=\"text-align: center;height: 53px\">\n<h4>Not Included<\/h4>\n<\/td>\n<\/tr>\n<tr style=\"height: 290px\">\n<td style=\"vertical-align: top;height: 290px\"><strong><span style=\"text-decoration: underline\">1-Final<\/span> goods and services<\/strong>: \u00a0A final good or service is purchased by the final user<\/p>\n<div id=\"attachment_6449\" style=\"width: 160px\" class=\"wp-caption aligncenter\"><a href=\"https:\/\/s3-us-west-2.amazonaws.com\/courses-images\/wp-content\/uploads\/sites\/1681\/2017\/06\/12060708\/228646035_643e39a08b_z.jpg\"><img loading=\"lazy\" decoding=\"async\" aria-describedby=\"caption-attachment-6449\" class=\"wp-image-6449 size-thumbnail\" src=\"https:\/\/s3-us-west-2.amazonaws.com\/courses-images\/wp-content\/uploads\/sites\/1681\/2017\/06\/12060708\/228646035_643e39a08b_z-150x150.jpg\" alt=\"\" width=\"150\" height=\"150\" \/><\/a><\/p>\n<p id=\"caption-attachment-6449\" class=\"wp-caption-text\">Computer = Final Product<\/p>\n<\/div>\n<\/td>\n<td style=\"height: 290px;vertical-align: top\"><strong>Intermediary goods:<\/strong> \u00a0Used to produce final goods. \u00a0If intermediary goods were included in GDP they would be counted twice, as they are reflected in the price or market value of the final product.<\/p>\n<div id=\"attachment_6450\" style=\"width: 160px\" class=\"wp-caption aligncenter\"><a href=\"https:\/\/s3-us-west-2.amazonaws.com\/courses-images\/wp-content\/uploads\/sites\/1681\/2017\/06\/12061339\/6500625219_4966a6ff53_m.jpg\"><img loading=\"lazy\" decoding=\"async\" aria-describedby=\"caption-attachment-6450\" class=\"wp-image-6450 size-thumbnail\" src=\"https:\/\/s3-us-west-2.amazonaws.com\/courses-images\/wp-content\/uploads\/sites\/1681\/2017\/06\/12061339\/6500625219_4966a6ff53_m-150x150.jpg\" alt=\"\" width=\"150\" height=\"150\" \/><\/a><\/p>\n<p id=\"caption-attachment-6450\" class=\"wp-caption-text\">Computer parts = intermediary goods<\/p>\n<\/div>\n<\/td>\n<\/tr>\n<tr style=\"height: 75.3125px\">\n<td style=\"vertical-align: top;height: 75.3125px\"><strong><span style=\"text-decoration: underline\">2-Produced<\/span> goods and services<\/strong><\/td>\n<td style=\"height: 75.3125px\"><strong>Non-production transactions: \u00a0<\/strong>Monetary transfers or gifts and\u00a0Transfer payments, such as payment by the government to individuals, are not included, because they do not represent production. \u00a0monetary transfers or gifts.<\/td>\n<\/tr>\n<tr style=\"height: 45px\">\n<td style=\"height: 45px;vertical-align: top\"><strong>3-Produced <span style=\"text-decoration: underline\">domestically<\/span>: \u00a0T<\/strong>he goods or services have to be produced in the US, by whom does not matter.<\/td>\n<td style=\"vertical-align: top;height: 45px\"><strong>Imports<\/strong><\/td>\n<\/tr>\n<tr style=\"height: 45px\">\n<td style=\"vertical-align: top;height: 45px\"><strong>4-Produced<span style=\"text-decoration: underline\"> in a given year<\/span><\/strong><\/td>\n<td style=\"vertical-align: top;height: 45px\"><strong>Resale: \u00a0<\/strong>The sales of used goods are not included because they were produced in a previous year and are part of that year\u2019s GDP.<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n<p>&nbsp;<\/p>\n<h3>GDP Measured by\u00a0Expenditures<\/h3>\n<p>Who buys all of this production? The Expenditures\u00a0can be divided into four main parts:<\/p>\n<table class=\"lines alignleft\" style=\"width: 819px\">\n<tbody>\n<tr>\n<td class=\"shaded\" style=\"width: 398px;vertical-align: top\">\n<h4><strong>Consumption<\/strong><\/h4>\n<p>Purchases of goods and services by households \/ consumers except new housing.<\/p>\n<p><a href=\"https:\/\/s3-us-west-2.amazonaws.com\/courses-images\/wp-content\/uploads\/sites\/1681\/2017\/06\/13050316\/consumption.png\"><img loading=\"lazy\" decoding=\"async\" class=\"size-medium wp-image-6458 aligncenter\" src=\"https:\/\/s3-us-west-2.amazonaws.com\/courses-images\/wp-content\/uploads\/sites\/1681\/2017\/06\/13050316\/consumption-300x109.png\" alt=\"\" width=\"300\" height=\"109\" \/><\/a><\/td>\n<td style=\"width: 399px;vertical-align: top\">\n<h4><strong>Gross Private Investments<\/strong><\/h4>\n<p>Purchase of new capital goods by private businesses + inventory +\u00a0<span style=\"text-decoration: underline\">new residential housing<\/span><\/p>\n<p>Examples include: \u00a0buildings, factories, stores and equipment, and inventories. \u00a0<a href=\"https:\/\/s3-us-west-2.amazonaws.com\/courses-images\/wp-content\/uploads\/sites\/1681\/2017\/06\/13052255\/3797111550_9893baf763_m.jpg\"><img loading=\"lazy\" decoding=\"async\" class=\"alignright wp-image-6459 size-thumbnail\" src=\"https:\/\/s3-us-west-2.amazonaws.com\/courses-images\/wp-content\/uploads\/sites\/1681\/2017\/06\/13052255\/3797111550_9893baf763_m-150x150.jpg\" alt=\"\" width=\"150\" height=\"150\" \/><\/a><\/p>\n<p>Inventories that are produced this year are included in this year\u2019s GDP\u2014even if they have not yet sold. From the accountant\u2019s perspective, it is as if the firm invested in its own inventories.<\/td>\n<\/tr>\n<tr>\n<td style=\"width: 398px\">\n<h4>\u00a0<strong>Government Spending<\/strong><\/h4>\n<p>Spending by all three levels of government: federal, state, and local, on goods or services produced in the economy. Examples include the government buying a new fighter jet for the Air Force (federal government spending), building a new highway (state government spending), or a new school (local government spending).<\/p>\n<p>Transfer payments, like unemployment benefits, veteran\u2019s benefits, and Social Security payments to retirees \u00a0are not included because they are monetary transfers not goods or services.<\/td>\n<td class=\"shaded\" style=\"vertical-align: top;width: 399px\">\n<h4><strong>Net Exports = Exports &#8211; Imports<\/strong><\/h4>\n<p>Spending by the foreign sector on American goods and services (exports) minus spending on foreign goods by US <em>(<\/em>imports<em>).<\/em><\/p>\n<p>The gap between exports and imports is also called the <em class=\"glossterm\">trade balance<\/em>. \u00a0Currently, the United States has a negative trade balance or trade deficit.<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n<p>&nbsp;<\/p>\n<div class=\"textbox shaded\"><span style=\"background-color: #ffffff\"><strong>Gross Domestic Product = GDP = Consumption + Gross Private Investment +\u00a0\u00a0Government spending + Net Export = \u00a0<\/strong><\/span><span style=\"background-color: #ffffff\"><strong>GDP = C + Ig + G + Xn<\/strong> <\/span><\/div>\n<div>here<\/div>\n<table class=\"alignleft\" style=\"width: 840px\">\n<tbody>\n<tr style=\"height: 221px\">\n<td style=\"width: 375px;height: 221px;vertical-align: top\"><a href=\"https:\/\/s3-us-west-2.amazonaws.com\/courses-images\/wp-content\/uploads\/sites\/1681\/2017\/06\/10070018\/GDP-chart-bea-1.png\"><img loading=\"lazy\" decoding=\"async\" class=\"aligncenter wp-image-6436\" src=\"https:\/\/s3-us-west-2.amazonaws.com\/courses-images\/wp-content\/uploads\/sites\/1681\/2017\/06\/10070018\/GDP-chart-bea-1-300x180.png\" alt=\"\" width=\"499\" height=\"300\" \/><\/a><br \/>\nFirst Quarter 2017<\/td>\n<td style=\"width: 375px;height: 221px;vertical-align: top\"><a href=\"https:\/\/s3-us-west-2.amazonaws.com\/courses-images\/wp-content\/uploads\/sites\/1681\/2017\/06\/10070441\/GDP-graph-bea-2.png\"><img loading=\"lazy\" decoding=\"async\" class=\"wp-image-6437 alignnone\" src=\"https:\/\/s3-us-west-2.amazonaws.com\/courses-images\/wp-content\/uploads\/sites\/1681\/2017\/06\/10070441\/GDP-graph-bea-2-300x175.png\" alt=\"\" width=\"400\" height=\"234\" \/><\/a><\/p>\n<p>First Quarter 2017<\/td>\n<\/tr>\n<tr style=\"height: 20px\">\n<td style=\"width: 300px;height: 20px;vertical-align: top\" colspan=\"2\">Bureau of Economic Analysis &#8211;\u00a0https:\/\/www.bea.gov\/iTable\/iTable.cfm?ReqID=9&amp;step=1#reqid=9&amp;step=3&amp;isuri=1&amp;903=6<\/td>\n<\/tr>\n<tr style=\"height: 34.5px\">\n<td style=\"width: 300px;height: 34.5px;vertical-align: top\" colspan=\"2\">Consumption is the largest component of GDP with 65% in the first quarter of 2017 and the most stable. Gross Private Investment is the most volatile and about 16%, similar to Government Spending. \u00a0Net Export is negative.<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n<p>&nbsp;<\/p>\n<p>Understanding how to measure GDP is important for analyzing connections in the macro economy and for thinking about macroeconomic policy tools.<\/p>\n<h3>HOW DO STATISTICIANS MEASURE GDP?<\/h3>\n<p>Government economists at the Bureau of Economic Analysis (BEA), within the U.S. Department of Commerce, piece together estimates of GDP from a variety of sources.<\/p>\n<p>Once every five years, in the second and seventh year of each decade, the Bureau of the Census carries out a detailed census of businesses throughout the United States. In between, the Census Bureau carries out a monthly survey of retail sales. These figures are adjusted with foreign trade data to account for exports that are produced in the United States and sold abroad and for imports that are produced abroad and sold here. Once every ten years, the Census Bureau conducts a comprehensive survey of housing and residential finance. Together, these sources provide the main basis for figuring out what is produced for consumers.<\/p>\n<p>For investment, the Census Bureau carries out a monthly survey of construction and an annual survey of expenditures on physical capital equipment.<\/p>\n<p>For what is purchased by the federal government, the statisticians rely on the U.S. Department of the Treasury. An annual Census of Governments gathers information on state and local governments. Because a lot of government spending at all levels involves hiring people to provide services, a large portion of government spending is also tracked through payroll records collected by state governments and by the Social Security Administration.<\/p>\n<p>With regard to foreign trade, the Census Bureau compiles a monthly record of all import and export documents. Additional surveys cover transportation and travel, and adjustment is made for financial services that are produced in the United States for foreign customers.<\/p>\n<p>Many other sources contribute to the estimates of GDP. Information on energy comes from the U.S. Department of Transportation and Department of Energy. Information on healthcare is collected by the Agency for Health Care Research and Quality. Surveys of landlords find out about rental income. The Department of Agriculture collects statistics on farming.<\/p>\n<p>All of these bits and pieces of information arrive in different forms, at different time intervals. The BEA melds them together to produce estimates of GDP on a quarterly basis (every three months). These numbers are then \u201cannualized\u201d by multiplying by four. As more information comes in, these estimates are updated and revised. The \u201cadvance\u201d estimate of GDP for a certain quarter is released one month after a quarter. The \u201cpreliminary\u201d estimate comes out one month after that. The \u201cfinal\u201d estimate is published one month later, but it is not actually final. In July, roughly updated estimates for the previous calendar year are released. Then, once every five years, after the results of the latest detailed five-year business census have been processed, the BEA revises all of the past estimates of GDP according to the newest methods and data, going all the way back to 1929.<\/p>\n<div class=\"linkitup\">\n<h3>LINK IT UP<\/h3>\n<p>Visit this <a class=\"link\" href=\"http:\/\/openstaxcollege.org\/l\/beafaq\" target=\"_blank\" rel=\"noopener noreferrer\">website<\/a> to read FAQs on the BEA site. You can even email your own questions!<\/p>\n<\/div>\n\n\t\t\t <section class=\"citations-section\" role=\"contentinfo\">\n\t\t\t <h3>Candela Citations<\/h3>\n\t\t\t\t\t <div>\n\t\t\t\t\t\t <div id=\"citation-list-6415\">\n\t\t\t\t\t\t\t <div class=\"licensing\"><div class=\"license-attribution-dropdown-subheading\">CC licensed content, Original<\/div><ul class=\"citation-list\"><li><strong>Authored by<\/strong>: S. Haci. <strong>Provided by<\/strong>: HCCS. <strong>Located at<\/strong>: <a target=\"_blank\" href=\"https:\/\/courses.lumenlearning.com\/hccs-macroeconomics-3\/chapter\/gross-domestic-pu2026-and-calculation\/\">https:\/\/courses.lumenlearning.com\/hccs-macroeconomics-3\/chapter\/gross-domestic-pu2026-and-calculation\/<\/a>. <strong>License<\/strong>: <em><a target=\"_blank\" rel=\"license\" href=\"https:\/\/creativecommons.org\/licenses\/by\/4.0\/\">CC BY: Attribution<\/a><\/em><\/li><li>GDP components graph. <strong>Authored by<\/strong>: S. Haci. <strong>Provided by<\/strong>: HCCS. <strong>Located at<\/strong>: <a target=\"_blank\" href=\"https:\/\/s3-us-west-2.amazonaws.com\/courses-images\/wp-content\/uploads\/sites\/1681\/2017\/06\/10070018\/GDP-chart-bea-1.png\">https:\/\/s3-us-west-2.amazonaws.com\/courses-images\/wp-content\/uploads\/sites\/1681\/2017\/06\/10070018\/GDP-chart-bea-1.png<\/a>. <strong>License<\/strong>: <em><a target=\"_blank\" rel=\"license\" href=\"https:\/\/creativecommons.org\/licenses\/by\/4.0\/\">CC BY: Attribution<\/a><\/em><\/li><li>GDP comp graph 2. <strong>Authored by<\/strong>: S.Haci. <strong>Provided by<\/strong>: HCCS. <strong>Located at<\/strong>: <a target=\"_blank\" href=\"https:\/\/s3-us-west-2.amazonaws.com\/courses-images\/wp-content\/uploads\/sites\/1681\/2017\/06\/10070441\/GDP-graph-bea-2.png\">https:\/\/s3-us-west-2.amazonaws.com\/courses-images\/wp-content\/uploads\/sites\/1681\/2017\/06\/10070441\/GDP-graph-bea-2.png<\/a>. <strong>License<\/strong>: <em><a target=\"_blank\" rel=\"license\" href=\"https:\/\/creativecommons.org\/licenses\/by\/4.0\/\">CC BY: Attribution<\/a><\/em><\/li><\/ul><div class=\"license-attribution-dropdown-subheading\">CC licensed content, Shared previously<\/div><ul class=\"citation-list\"><li><strong>Authored by<\/strong>: wilsonhe. <strong>Provided by<\/strong>: Lumen Learning. <strong>Located at<\/strong>: <a target=\"_blank\" href=\"https:\/\/courses.lumenlearning.com\/hccs-macroeconomics-3\/chapter\/calculating-gdp\/\">https:\/\/courses.lumenlearning.com\/hccs-macroeconomics-3\/chapter\/calculating-gdp\/<\/a>. <strong>License<\/strong>: <em><a target=\"_blank\" rel=\"license\" href=\"https:\/\/creativecommons.org\/licenses\/by\/4.0\/\">CC BY: Attribution<\/a><\/em><\/li><li>Bureau of Economic Analysis data. <strong>Authored by<\/strong>: BEA.gov. <strong>Provided by<\/strong>: BEA.gov. <strong>Located at<\/strong>: <a target=\"_blank\" href=\"https:\/\/www.bea.gov\/iTable\/iTable.cfm?ReqID=9&#038;step=1#reqid=9&#038;step=3&#038;isuri=1&#038;903=6\">https:\/\/www.bea.gov\/iTable\/iTable.cfm?ReqID=9&#038;step=1#reqid=9&#038;step=3&#038;isuri=1&#038;903=6<\/a>. <strong>License<\/strong>: <em><a target=\"_blank\" rel=\"license\" href=\"https:\/\/creativecommons.org\/about\/pdm\">Public Domain: No Known Copyright<\/a><\/em><\/li><li>Principles of Economics - ch 6. <strong>Authored by<\/strong>: Openstax. <strong>Provided by<\/strong>: Rice University. <strong>Located at<\/strong>: <a target=\"_blank\" href=\"http:\/\/cnx.org\/contents\/4061c832-098e-4b3c-a1d9-7eb593a2cb31@10.49:2\/Macroeconomics\">http:\/\/cnx.org\/contents\/4061c832-098e-4b3c-a1d9-7eb593a2cb31@10.49:2\/Macroeconomics<\/a>. <strong>License<\/strong>: <em><a target=\"_blank\" rel=\"license\" href=\"https:\/\/creativecommons.org\/licenses\/by\/4.0\/\">CC BY: Attribution<\/a><\/em><\/li><li>Photo. <strong>Authored by<\/strong>: Alexis Robert. <strong>Located at<\/strong>: <a target=\"_blank\" href=\"https:\/\/www.flickr.com\/photos\/alexisrobert\/228646035\/in\/photolist-mcSv2-dvPDZ9-9JoCic-9xeHkK-jjoezf-5Y8et-6hwHFW-d8auR5-otu8m9-3BnzX-dvj4r-7GZC2c-9sqA9h-4Dm5BX-8bQ6sB-37ZYg-7GZBEv-junq-d8auf9-uqMBf-9zpRoM-7NaPSe-6g9yoP-iyQwg-7Eu9UE-662Gz6-ce6EGQ-dssLCH-F6aNg-pXC3MM-98PULS-4s6q3J-5uUzWm-dagmPq-pXBZBt-62tZmu-3uPSL-piiJPF-9JfDUW-dho5p-gSPV9z-bA2nvP-drQmbb-bn7edW-82iQc-zwTQx-2tsxe-NqZC2-c1EJAf-7LM8Yj\">https:\/\/www.flickr.com\/photos\/alexisrobert\/228646035\/in\/photolist-mcSv2-dvPDZ9-9JoCic-9xeHkK-jjoezf-5Y8et-6hwHFW-d8auR5-otu8m9-3BnzX-dvj4r-7GZC2c-9sqA9h-4Dm5BX-8bQ6sB-37ZYg-7GZBEv-junq-d8auf9-uqMBf-9zpRoM-7NaPSe-6g9yoP-iyQwg-7Eu9UE-662Gz6-ce6EGQ-dssLCH-F6aNg-pXC3MM-98PULS-4s6q3J-5uUzWm-dagmPq-pXBZBt-62tZmu-3uPSL-piiJPF-9JfDUW-dho5p-gSPV9z-bA2nvP-drQmbb-bn7edW-82iQc-zwTQx-2tsxe-NqZC2-c1EJAf-7LM8Yj<\/a>. <strong>License<\/strong>: <em><a target=\"_blank\" rel=\"license\" href=\"https:\/\/creativecommons.org\/licenses\/by-sa\/4.0\/\">CC BY-SA: Attribution-ShareAlike<\/a><\/em><\/li><li>Photo - computer parts. <strong>Authored by<\/strong>: McEntee. <strong>Provided by<\/strong>: flickr. <strong>Located at<\/strong>: <a target=\"_blank\" href=\"https:\/\/www.flickr.com\/photos\/smemon\/6500625219\/in\/photolist-aUrppa-e54wcH-aEwmBy-auXWRX-8NKcxY-6iFeLZ-av2tBL-av2qZW-UkksRh-SXyqfz-dP8siB-9cUykZ-9eCB45-av1FWQ-8NKayE-9cXDjo-aPDE3T-UgjhwY-9eCB4A-e54LF8-nrqLYM-cuwG7L-9EfGAC-RWi4Sd-dWj4Fd-nrteCo-ntcCrZ-n9Wnur-9cXDgW-ntcCBP-9cUyhc-nrqLwV-9cXDfq-9cUyhP-9cUyk2-72A3hi-UCNvzy-So1v13-rofd2G-aPDDW2-n9Wnz8-e3FoQc-4KfLoa-FNxV8j-9ezvmK-aEsvzV-9cXDgf-cAvaAC-aPDEba-aEsvUp\">https:\/\/www.flickr.com\/photos\/smemon\/6500625219\/in\/photolist-aUrppa-e54wcH-aEwmBy-auXWRX-8NKcxY-6iFeLZ-av2tBL-av2qZW-UkksRh-SXyqfz-dP8siB-9cUykZ-9eCB45-av1FWQ-8NKayE-9cXDjo-aPDE3T-UgjhwY-9eCB4A-e54LF8-nrqLYM-cuwG7L-9EfGAC-RWi4Sd-dWj4Fd-nrteCo-ntcCrZ-n9Wnur-9cXDgW-ntcCBP-9cUyhc-nrqLwV-9cXDfq-9cUyhP-9cUyk2-72A3hi-UCNvzy-So1v13-rofd2G-aPDDW2-n9Wnz8-e3FoQc-4KfLoa-FNxV8j-9ezvmK-aEsvzV-9cXDgf-cAvaAC-aPDEba-aEsvUp<\/a>. <strong>License<\/strong>: <em><a target=\"_blank\" rel=\"license\" href=\"https:\/\/creativecommons.org\/licenses\/by\/4.0\/\">CC BY: Attribution<\/a><\/em><\/li><li>photo machinery. <strong>Authored by<\/strong>: Jon Collier. <strong>Provided by<\/strong>: Flickr. <strong>Located at<\/strong>: <a target=\"_blank\" href=\"https:\/\/www.flickr.com\/photos\/imnotquitejack\/3797111550\/in\/photolist-6MxbYw-ASkdC-6MsZBa-DpMC19-4keY2J-4kaX8r-Q7Qa-8f6YFC-4kaWDa-HrrUP9-HNSbGy-4YNnyx-UJfcPk-aB1kDv-6kHoWS-Td7AzW-71R7Ln-bEQbQS-Td7z5S-a6KXx3-a3Hjqo-oxCUmK-4veoEx-q8rKH1-rgndpH-eNGky5-iD1Q4F-6LaVH6-iD21fx-TzGgjK-4r8JBd-a7wTho-ArnMQ-fvTVTL-gs1SYc-TBgBBC-5pmWfB-9Xh1BX-naceL9-p9agqZ-SX8wLS-UidUpF-GKWUE-bFVGd2-49nVSB-fEn9z-HkJ7Ty-noenho-ASkdF-bpeiU9\">https:\/\/www.flickr.com\/photos\/imnotquitejack\/3797111550\/in\/photolist-6MxbYw-ASkdC-6MsZBa-DpMC19-4keY2J-4kaX8r-Q7Qa-8f6YFC-4kaWDa-HrrUP9-HNSbGy-4YNnyx-UJfcPk-aB1kDv-6kHoWS-Td7AzW-71R7Ln-bEQbQS-Td7z5S-a6KXx3-a3Hjqo-oxCUmK-4veoEx-q8rKH1-rgndpH-eNGky5-iD1Q4F-6LaVH6-iD21fx-TzGgjK-4r8JBd-a7wTho-ArnMQ-fvTVTL-gs1SYc-TBgBBC-5pmWfB-9Xh1BX-naceL9-p9agqZ-SX8wLS-UidUpF-GKWUE-bFVGd2-49nVSB-fEn9z-HkJ7Ty-noenho-ASkdF-bpeiU9<\/a>. <strong>License<\/strong>: <em><a target=\"_blank\" rel=\"license\" href=\"https:\/\/creativecommons.org\/licenses\/by-sa\/4.0\/\">CC BY-SA: Attribution-ShareAlike<\/a><\/em><\/li><\/ul><div class=\"license-attribution-dropdown-subheading\">Public domain content<\/div><ul class=\"citation-list\"><li>GDP graph. <strong>Authored by<\/strong>: Congressional Budget Office - Federal reserve st Louis. <strong>Provided by<\/strong>: Congressional Budget Office - Federal reserve st Louis. <strong>Located at<\/strong>: <a target=\"_blank\" href=\"https:\/\/fred.stlouisfed.org\/graph\/?id=GDPPOT,\">https:\/\/fred.stlouisfed.org\/graph\/?id=GDPPOT,<\/a>. <strong>License<\/strong>: <em><a target=\"_blank\" rel=\"license\" href=\"https:\/\/creativecommons.org\/about\/pdm\">Public Domain: No Known Copyright<\/a><\/em><\/li><\/ul><\/div>\n\t\t\t\t\t\t <\/div>\n\t\t\t\t\t <\/div>\n\t\t\t <\/section>","protected":false},"author":18767,"menu_order":2,"template":"","meta":{"_candela_citation":"[{\"type\":\"original\",\"description\":\"\",\"author\":\"S. 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