Q:

How do I calculate gross private domestic investment?

A:

Quick Answer

To calculate gross private domestic investment, subtract the nation's net exports from its GDP, subtract the government's gross spending from this sum, and subtract the combined value of all personal consumption, which includes what consumers spend on goods and services. There are a number of steps involved in calculating this figure, beginning with GDP and removing certain line items.

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Full Answer

Gross private domestic investment is the official government measurement of investment expenditures undertaken by the private business sector. The expenditures that make up the final number tend to be the least stable of all the expenditures measured through GDP. In the United States, gross private domestic investment averages between 12 and 18 percent of GDP, and tends to be at the low end during business-cycle contractions and at the high end during business-cycle expansions. It is also influenced by businesses' confidence in the economy.

Gross private domestic investment is an important component of GDP because it provides an indicator of the future productive capacity of an economy. It generally includes three types of investment: non-residential investment (expenditures on things like tools, machinery, and factories that improve productive capacity), residential Investment (expenditures on residential structures and residential equipment that is owned by landlords and rented to tenants), and changes in business inventories.

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