government spending is part of the formula for GDP


The formula for GDP is:

* GDP = C + I + G + (Ex - Im)

EconoTalk

Gross Domestic Product is the sum of all spending on goods and services in a nation's economy in a year. The formula for GDP is: GDP = C + I + G + (Ex - Im), where ??C? equals spending by consumers, ??I? equals investment by businesses, ??G? equals government spending and ??(Ex - Im)? equals net exports, that is, the value of exports minus imports. Net exports may be negative.

Subsidies are transfer payments to assist industries that benefit the public, but might not survive or remain stable if operated for profit without subsidies. Farm products and rail transportation are subsidized in most modern economies.

The parts of the formula are simple:

* C = total spending by consumers
* I = total investment (spending on goods and services) by businesses
* G = total spending by government (federal, state, and local)
* (Ex - Im) = net exports (exports - imports)