Does the expenditure approach to computing GDP measure U.S. spending on all goods, U.S. spending on only U.S. goods, or U.S. and foreign spending on only U.S. goods

Answer 1

The expenditure approach to computing Gross Domestic Product (GDP) measures total spending on all final goods and services produced within a country's borders in a given period, typically a year or a quarter. Specifically, for the United States, it includes spending by different sectors—consumers, businesses, government, and the foreign sector—on final goods and services produced within the U.S.

The key components of the expenditure approach to GDP are represented in the formula:

\[ GDP = C + I + G + (X - M) \]

where:
- \( C \) stands for consumption expenditures by households.
- \( I \) stands for investment expenditures by businesses.
- \( G \) stands for government expenditures.
- \( X \) stands for exports of goods and services.
- \( M \) stands for imports of goods and services.

To break it down:
- Consumption (C): This includes all private expenditures by households on goods and services.
- Investment (I): This includes business investments in equipment and structures, residential construction, and changes in business inventories.
- Government Spending (G): This consists of government expenditures on goods and services.
- Net Exports (X - M): This represents the value of exports minus the value of imports.

### Key Points:
- **U.S. spending on all goods:** This includes U.S. spending on both domestically produced and imported goods and services. However, for the purpose of calculating GDP, imports are subtracted because they do not represent production within the U.S.
- **U.S. spending on only U.S. goods:** The calculation must adjust for imports and exports to ensure only U.S. production is accounted for. This adjustment is made by adding exports (goods and services produced in the U.S. and sold abroad) and subtracting imports (goods and services produced abroad and sold in the U.S.).
- **U.S. and foreign spending on only U.S. goods:** This includes both domestic consumption of U.S. goods and services and what foreign buyers spend on U.S. exports.

Therefore, the expenditure approach to computing U.S. GDP effectively measures U.S. and foreign spending on only U.S. goods and services by adding exports and subtracting imports to ensure the final measure reflects spending on U.S.-produced goods and services.