| Chapter 11 Outline |
| II.GDP'S COMPONENTS |
| A. Consumption |
| 1. Personal consumption expenditures consist of household purchases of durable goods, nondurable goods, and services. |
| 2. Personal consumption expenditures are the largest component of GDP. |
| 3. Personal consumption expenditures are a relatively stable component of GDP. |
| B. Gross Investment |
| 1. Gross private domestic investment is the purchase of equipment by firms, the purchase of all newly produced structures, and changes in business inventories. |
| 2. Gross private domestic investment consists of net private domestic investment and the consumption of fixed capital. |
| a. Net private domestic investment is the part of gross investment that adds
to the existing stock of structures and equipment. |
| b. The consumption of fixed capital consists of depreciation and an allowance for accidental damage to the nation's structures and equipment. |
| 3. If net private domestic investment is positive, then the nation's capital stock, and hence the nation's productive capacity increases. |
| 4. If net private domestic investment is negative, the nation's capital stock, and hence the nation's productive capacity decreases. |
| C. Government Purchases |
| 1. Government purchases of goods and services are the purchases of goods and services by federal, state, and local governments. |
| a. Transfer payments are excluded from GDP because they do not involve
the production of goods and services. |
| D. Net Exports |
| 1. Net exports of goods and services is the difference between exports of goods and services and imports of goods and services. |
| a. Exports are produced in this country and purchased by foreigners. |
| b. Imports are produced abroad and are purchased by persons in this country. |
| 2. In recent years net exports of goods and services has been a negative component of GDP. |