Question

List and briefly describe the four spending components of GDP.

Answer 1

There are four spending components of GDP that help compute GDP by  the expenditure method .
GDP = C + I + G + (X- M)

These are the four components: consumer spending (C), business investment (I), government spending (G) and net exports (X - M).

Consumption spending is the major source of GDP in many countries. It includes expenditure by consumers on durable and non durable goods like wheat, refrigerators, etc. and on services like internet.

Investment by business includes expenditure by businesses on capital goods with useful life of over 1 year. For example, plant and equipment, machinery, etc. This is the most volatile component of GDP.

Government spending in defence and non defence goods like armaments, roads, healthcare, education and the like, forms an important component of GDP that is sometimes increased or decreased in order to adjust the GDP to higher or lower level as a corrective measure in leading the economy towards equilibrium.
Net exports is calculated as exports -minus- imports. If exports are greater than imports, net exports are positive and GDP increases when Net exports are added to it. On the other hand, if imports are greater than exports, then net exports are negative, and adding net exports decreases the GDP.
These are the four components of expenditure method of GDP. Expenditure method is the most widely used method of calculating GDP in the world.