1.Define GDP and compare the two ways in which it can be calculated.

Gross Domestic Product is defined as the total market value of all final goods and services produced annually within the boundaries of the United States, whether by U.S. or foreign-supplied resources. GDP may be measured either by the expenditure approach or the income approach. The expenditure approach simply adds up all the expenditures on final goods and services. In its basic form, four categories of expenditures add to the total: Consumption expenditures by households; investment expenditures by businesses; government purchases of goods and services; and foreign purchases of goods and services.

The income approach to GDP adds up all of the components of income that arise from the production of the final goods and services. This number will (in theory) add up to the same number found in the expenditure approach. It is found by adding up wages, rents, interests, profits, and then a statistically adjusted to balance with the expenditure approach.

2. Use any source available to break down business investment spending into three broad categories.

Investment spending by businesses is commonly separated into three broad categories. They include (1) all final purchases of machinery, equipment, and tools; (2) all construction; and, (3) changes in inventories. Number 1 is self-explanatory and not easily confused; however, it is important to explain that all construction includes residential construction because students are likely to associate it with consumption spending. The final item, change in inventories, refers to output that is produced but not consumed and is rightly included in the investment category.

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