The goods market - The Composition of GDP
5 important questions on The goods market - The Composition of GDP
How is GDP composed?
- Consumption (C)
- Investment (I)
- Government spending (G)
- Net exports
- Exports (X)
- Imports (IM)
- Inventory investment
What are endogenous variables and exogenous variables?
- Endogenous variables: explained within the model. Variables that depend on other variables within the model
- Exogenous variables: taken as given. Variables that are not explained within the model
To what does C and I refer to?
- Consumption
(C): refers to the goods and services purchased by consumers. - Investment
(I): sometimes called fixed investment, is the purchase of capital goods. It is the sum of non-residential and residential investment. What’s that?: - Non-residential investment: Expenditures by FIRMS on capital such as
tools, machinery, and factories. - Residential Investment: Expenditures on residential structures and residential equipment that is owned by LANDLORDS(=huisbazen) and rented to tenants(
=huurders)
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To what does IM and X refer to? And what is net exports?
- Imports (IM): are the purchases of foreign goods and services by consumers, business firms and the government.
- Exports (X): are the purchases of ''US'' goods and services by foreigners.
- Net exports (X - IM): is the difference between exports and imports, also called the trade balance
- Is a trade deficit “bad”?
What is inventory investments?
Inventory investment is the difference between production and sales.
(What is produced in a certain country is naturally also sold eventually, but some of the goods produced in a given year may be sold in a later year rather than in the year they were produced. Conversely, some of the goods sold in a given year might have been produced in an earlier year. The difference between goods produced (production) and goods sold (sales) in a given year is called inventory investment.)
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