How to calculate GDP with the expenditure approach

Identify the four main components of expenditures in the economy: Personal Consumption Expenditures ($C$), Gross Private Domestic Investment ($I$), Government Purchases ($G$), and Net Exports ($NX$). The fundamental equation is $GDP = C + I + G + NX$. Note that Net Exports is defined as total exports ($X$) minus total imports ($M$), so the expanded equation is $GDP = C + I + G + (X - M)$.

Step 1. Sum all household spending on durable goods, nondurable goods, and services to find $C$. Step 2. Sum all business spending on capital equipment, construction (including residential), and changes in inventory to find $I$. Step 3. Sum all local, state, and federal government spending on final goods and services to find $G$. Step 4. Calculate net exports ($NX$) by subtracting the value of imports ($M$) from the value of exports ($X$). Step 5. Add $C$, $I$, $G$, and $NX$ together to obtain the total GDP.

Verify that imports were subtracted from the total, not added. Check that $G$ excludes all transfer payments, as these do not represent purchases of currently produced goods or services. Ensure that $I$ uses gross investment rather than net investment; if net investment is provided, add depreciation to obtain gross investment.

A frequent error is including the sales of used goods or financial assets (like stocks and bonds), which do not represent new production. Another common mistake is double-counting by including intermediate goods instead of only final goods. Finally, students often mistakenly add imports instead of subtracting them when given independent $X$ and $M$ values.