How to Calculate GDP (Expenditure Approach)
To calculate GDP with the expenditure approach, add consumption, investment, government spending, and net exports: GDP = C + I + G + Xn.
Formula
GDP = C + I + G + (X − M) where Xn = X − M (net exports)
Steps
- 1Add up consumption (C). Total spending by households on goods and services, excluding new home purchases.
- 2Add gross private investment (I). Business spending on capital, new housing, and changes in inventories.
- 3Add government spending (G). Federal, state, and local spending on goods and services — exclude transfer payments like Social Security.
- 4Add net exports (Xn). Exports minus imports (X − M). Net exports can be negative.
- 5Sum the four components. GDP = C + I + G + Xn. This is nominal GDP if you used current-year prices.
Worked example
If C = $12T, I = $3T, G = $4T, exports = $2T, and imports = $3T, then Xn = 2 − 3 = −$1T, so GDP = 12 + 3 + 4 + (−1) = $18 trillion.
Frequently asked questions
What is not included in GDP?
Transfer payments, used goods, intermediate goods, financial transactions, and unpaid/illegal work are excluded — GDP counts only final goods and services produced this year.
What is the difference between the expenditure and income approach?
The expenditure approach sums spending (C + I + G + Xn); the income approach sums all income earned (wages, rent, interest, profit). Both should yield the same GDP.