GDP (Y) is composed of: Consumption (C) Investment (I) Government spending (G) Net exports Exports (X) Imports (IM) Inventory investment

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The goods market - The Composition of GDP

Q: What are endogenous variables and exogenous variables?

Endogenous variables : explained within the model. Variables that depend on other variables within the model Exogenous variables : taken as given. Variables that are not explained within the model NB Boek is hierin niet volledig consistent. Zijn PowerPoints wel.

Q: To what does C and I refer to?

Consumption (C): refers to the goods and services purchased by consumers. Investment (I): sometimes called fixed investment, is the purchase of capital goods. It is the sum of non-residential and residential investment . What’s that?: Non-residential investment : Expenditures by FIRMS on capital such as tools, machinery, and factories. Residential Investment : Expenditures on residential structures and residential equipment that is owned by LANDLORDS ( =huisbazen ) and rented to tenants( =huurders)

Q: To what does IM and X refer to? And what is net exports?

Imports (IM) : are the purchases of foreign goods and services by consumers, business firms and the government. Exports (X): are the purchases of ''US'' goods and services by foreigners. Net exports (X - IM ): is the difference between exports and imports, also called the trade balance Is a trade deficit “bad”?

Q: What is inventory investments?

Inventory investment is the difference between production and sales. ( What is produced in a certain country is naturally also sold eventually, but some of the goods produced in a given year may be sold in a later year rather than in the year they were produced. Conversely, some of the goods sold in a given year might have been produced in an earlier year. The difference between goods produced (production) and goods sold (sales) in a given year is called inventory investment. )

5 important questions on The goods market - The Composition of GDP

How is GDP composed?

GDP (Y) is composed of:

Consumption (C)
Investment (I)
Government spending (G)
Net exports

Exports (X)
Imports (IM)

Inventory investment

What are endogenous variables and exogenous variables?

Endogenous variables: explained within the model. Variables that depend on other variables within the model
Exogenous variables: taken as given. Variables that are not explained within the model

NB Boek is hierin niet volledig consistent. Zijn PowerPoints wel.

To what does C and I refer to?

Consumption (C): refers to the goods and services purchased by consumers.
Investment (I): sometimes called fixed investment, is the purchase of capital goods. It is the sum of non-residential and residential investment. What’s that?:

Non-residential investment: Expenditures by FIRMS on capital such as tools, machinery, and factories.
Residential Investment: Expenditures on residential structures and residential equipment that is owned by LANDLORDS(=huisbazen) and rented to tenants(=huurders)

To what does IM and X refer to? And what is net exports?

Imports (IM): are the purchases of foreign goods and services by consumers, business firms and the government.
Exports (X): are the purchases of ''US'' goods and services by foreigners.
Net exports (X - IM): is the difference between exports and imports, also called the trade balance
Is a trade deficit “bad”?

What is inventory investments?

Inventory investment is the difference between production and sales.
(What is produced in a certain country is naturally also sold eventually, but some of the goods produced in a given year may be sold in a later year rather than in the year they were produced. Conversely, some of the goods sold in a given year might have been produced in an earlier year. The difference between goods produced (production) and goods sold (sales) in a given year is called inventory investment.)