2019	2018
US GDP	$21,427.7 Billion	$20,580.2 Billion
Consumption	$14,562.7 Billion	$13,998.7 Billion
Investment	$3,743.9 Billion	$3,628.3 Billion
Government	$3,753 Billion	$3,591.5 Billion
Net Exports	-631.9 Billion	-638.2 Billion

While our goal is to measure production, we do so indirectly by measuring spending.  If we adjust for changes in inventory and international trade and are careful to avoid intermediate goods and second-hand goods (they were produced during some other year), this approach works out to be roughly the same.  Ford produces a ne5 w car worth $30,000.  The new car is purchased by a consumer for $30,000.  It’s the same. 

Referring to the data above, we’ve broken expenditures out into four parts: consumption, investment, government, and net exports. 

Consumption expenditures are the purchase of goods (e.g. an automobile) and services (e.g. a haircut) by households.  As you can see, consumption expenditures make up roughly two-thirds of all spending in the US economy. 

Investment expenditures are generally expenditures made by businesses for plant, equipment, and such.  It also includes construction activity.  Consider for example the building of an apartment complex.  The apartment complex will be used to provide a service to consumers and therefore is appropriately labelled an investment.  But then what about a new residential home?  How is it different just because it’s owned by the final user rather than a landlord?  It isn’t.  And so residential construction is also included under investment. 

The final thing worth noting is that we include net changes in inventories under investment.  Kind of makes sense.  But more importantly, it makes the numbers work out right.  If we only half-finished the apartment complex in 2019, should we wait until 2020 to count that production?  By counting the value of the “work-in-progress” inventory, we make the numbers correspond to the year stuff happened.

Government expenditures include all spending on goods or services by the federal, state, or local governments.  The number above may seem small relative to numbers you hear used in the news.  That’s because we don’t include “transfer payments” in GDP.  If you pay taxes that are in turn payed out to a retiree for social security, exactly what was produced?  Nothing.  Its only when that money is spent by the retiree that it matters.  The largest portion of federal government spending involves transfer payments.  That’s why the number seems small.

Net Exports are the value of US exports minus the value of goods and services imported into the United States.  Exports are goods produced in the United States but sold to foreigners.  As these are never accounted for as a transaction in the US, we must add them in after the fact.  On the other hand, a good amount of consumption expenditure actually measured was made for goods produced in other countries.  Then why were they included in GDP?  They shouldn’t have been.  But it would be impossible to parse out at the point of sale what portion of purchases was for domestic content and what portion was imports.  So, we just throw it all in together.  Then we use data collected by the US Customs Service to determine the value of all imports that came into the United States so we can subtract that number from GDP.  Net export is therefore the value of exports minus the value of imports.  The fact its negative simply indicates that we imported much more than we exported in the years 2019 and 2018.