Question

Describe the components of GDP = C + I + G + X - IM. Tell who or which sector is the actor and what they buy, by category and by specific example. Which sector is largest and most important in the U.S. American economy?

Answer 1

Gross Domestic Product or GDP is the sum total of the entire market value of all finished goods that are produced within an economy, during a given time period.
There are 4 main components of GDP:

1). Household Consumption Expenditure (C)- It is the masure of the monetary value of all consumer good and services that are purchased within an economy during a given period of time.
Personal consumption includes expenditure on:
i). Durable Goods- furniture, automobiles, etc.
ii). Non-durable goods- Food, clothing, etc.
iii). Services- Health, finance, banking, insurance, etc.

2). Investment Expenditure (I)- Investment Expenditure includes the money spent by businesses to produce consumer goods. These are additions made to the physical stock of capital during a given period of time. Such investment expenditure can be further classified into the following:
i). Fixed Investment- It is the amount spend by businesses in acquiring capital goods like plant and machinery.
ii). Inventory Investment- It is the net change in stock of final goods, semi-finished goods and raw materials.

3). Government Expenditure (G)- This is the aggregate of all expenditure made by the government on goods and services within the economy in a given time period. It includes: i). Purchase of goods; ii). Wages and salaries.
Government Expenditure also includes subsidies provided by the government. These are transfer payments that the government provides to industries which prevail for the benefit of the public but might not be able to survive on their own if there is no government assistance. Industries like agriculture, livestock, railways, etc. come under this category.

4). Exports (X)- This is the amount of foreign currency that flows into the economy from other countries. It is the total value of goods and services that are purchased by other economies.

5). Imports (IM)- This is the total monetary value of goods and services that were produced by other countries. This will not be added in the GDP of a country because only goods which are produced 'within' the economy are to be included in the calculation of the GDP.

Therefore,
GDP= C+I+G+X-IM
Sometimes, X-IM can also be refered as Net Exports.

The largest sector in the US economy is the housing sector. It includes real estate, renting and leasing. It contributes to approximately 13% of the GDP of United States estimated at a value of $1.898 trillion. This sector contributes to the GDP in two ways. One, through the consumer spending on rent and household utilities; secondly, residential investment which includes the construcion of new houses, brokerage and remodelling of residences. The impact of the housing industry in the US was seen majorly duing the 2008 crisis where a major recession had hit the housing sector and the prices of houses dropped nationwide. The housing sector also plays an important role in providing employment to over 1.9million people.