|Chapter 11 Outline
| II.GDP'S COMPONENTS
|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.