As we know , the definition of gdp “GDP measures the monetary value of final goods and services”
Ive also heard that GDP = C + I + G + (X-M)
So im trying to reconcile these two definitions.
I know that the goods and services people buy are included in C and that’s what the only thing i thought about when i thought of “final goods and services” ,
So what is included in I and G.
Suppose a company invests in building an oil well, so is that also considered a “final good” ?
And what about G ? what final good or service does the govt create/provide
In: 5
The “I” and “G” aren’t about what “final goods and services” they provide, but about what they spend to get those goods and services. The same is true for “C”. This whole equation is about spending.
The final product delivered has lots of costs and profits along the way. You only get to record the final effect on the gdp as delivered to the end user. Every transaction along the way is considered a cost of goods. If you recorded every profit made along the way you would greatly inflate the value of the final transaction. The manufacturer, master distributer, distributor, and retailer will all record a profit, but that doesn’t count towards G(goods).
Goods and services are traded in market, so oil well is investment and not goods and services.
Govt provides all judiciary, police, fire department etc..etc which are services.
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