The Gross Domestic Product (GDP) is the market value of all final goods and services produces within a country in a given period of time (Mankiw,2015). It looks at how the economy is doing. Author N. Gregory Mankiw uses an example of judging a person by seeing how a person lives. What kind of home he/she has, how much money is he/she making? This is similar to what GDP does for the economy. It judges how well the economy is doing. GDP is divided into four components: consumption, investment, government purchases, and net exports. Each area is analyzed to see the kinds of spending that ultimately make up GDP.
Gross Domestic Products and its Components
Gross Domestic Product (GDP) is divided into four components: …show more content…
Net exports are the spending on domestically produced goods by foreigners (exports) minus spending on foreign goods by domestic residents (imports) (Mankiw,2015). There are a number of products that are still produced in the U.S. that are exported to other countries to be sold. I purchased an American made car about two years ago. Although they promote the car to be American made, some of its parts and assemblies were produced and/or assembled in Canada, Mexico, Europe, Japan, and South Korea, just to name a few (Newman, R., 2015). When I purchased the car, the purchase was considered a positive entry in GDP. All the foreign parts as reflected as a negative entry to GDP because they were foreign produced (Bureau of Economic Analysis, 2010b).
Overall, GDP’s four components affect my every day life, whether it be purchasing groceries to working with scientists who receives federally funded research grants. The goal of GDP is to see how the nation’s economy is doing by analyzing the various spending through the four components of consumption, investment, government purchases, and net exports. The government uses this information to gauge the health of the