The Composition of GDP

A country's gross domestic product -- its GDP -- is defined as the sum of all services and goods that are produced by that country, and is one of the leading indicators of whether an economy is healthy. Analysts determine GDP by compiling only the value of final services and goods, which excludes the cost of supplies and material necessary to manufacture a product. GDP is calculated by adding consumer spending, industry investment, government spending and net exports.

Consumer Spending

For most countries, consumer spending is the most significant component of GDP. This figure is compiled by adding the total amount of spending on all services and goods bought by households. Goods measured include durable and non-durable goods. Durable goods -- also known as hard goods -- have lasting value and are not immediately consumed. Examples include appliances, electronics and furniture. Non-durable goods -- also known as soft goods -- are quickly consumed or do not last a long time. Examples include fuel, clothing and food. Services refers to money that consumers spend on insurance, health care and other services.


For the purpose of measuring GDP, investment is defined as the amount of money spent on buying goods required for manufacturing and production. There are three types of investment in GDP: fixed investment, inventory investment and residential investment. Fixed investment refers to total expenditures for things such as machinery and factories. Inventory investment is measured by calculating the amount of unused raw materials and the worth of goods in shops and stores that have not been sold. Residential investment measures the total amount of new home acquisitions.

Government Spending

Government spending is often a large part of a country's economy and includes purchases of military equipment, government employee salaries and construction of roads, bridges and other essential structures. Government spending is calculated using figures from local, state and federal governments, but does not include spending on entitlement programs such as welfare or Social Security, which are considered benefits.

Total Exports

Total exports -- also classified as net exports -- are calculated by taking the total amount of a country's exports and subtracting the total amount of imports. For example, if the U.S. spends more on China's goods than China does on American goods, the United States will have a trade deficit with China. If the U.S. spends less on Chinese goods than China does on American goods, the United States will have a trade surplus with China.