GDP Equation Review

The GDP equation is a macroeconomic model used to find the Gross Domestic Product for a region. The teacher told us that the GDP equation will be on our test on Thursday, so here’s a quick review for studying’s sake.

The Basics

GDP = C + I + G + (X - M)

The equation above has a lot of variables, but what do they mean?

  • GDP = What we are solving for
  • C = Consumer Spending
  • I = Business Expenditures
  • G = Government Spending
  • (X-M) = Foreign Sector/Trade Balance
  • X = Exports
  • M = Imports

How to Remember the Variables

All of the variables except one the first/second letter matches the variable letter. C = Consumer Spending, for example. Focus instead on remebering the I. The teacher even told us, he’s going to add “investments” and “intermediate spending” to throw us off, but the I is Business expenditures.

Let’s Do a Practice Problem

Consumer spending = 26 mil
Government spending = 50 mil
secondhand spending = 14 mil
imports = 24 mil
exports = 14 mil
business expenditures = 10 mil
intermediate spending = 23 mil
investments = 56 mil


these numbers are made up for practice.

We have a whole lot of numbers here, but don’t confuse yourself! Only look for those that fit into our equation. First, our C, or consumer spending. 

GDP = C + I + G + (X - M)
GDP = 26 mil + I + G + (X - M)

Next, our BUSINESS EXPENDITURES.

GDP = 26 mil + I + G + (X - M)
GDP = 26 mil + 10 mil + G + (X - M)

Then, our government spending.

GDP = 26 mil + 10 mil + G + (X - M)
GDP = 26 mil + 10 mil + 50 mil + (X - M)

Finally, our foreign sector, aka, our trade balance. Our imports and our exports.

GDP = 26 mil + 10 mil + 50 mil + (X - M)
GDP = 26 mil + 10 mil + 50 mil + (14 mil - 24 mil)

Now put it all in your calculator, and you should get 76 million dollars (for your answer.)

Finishing Notes

Thank you for reading, and wish me luck on the econ test! I might make another post to review, but we shall see. Here’s a little comic I made about it, and see you next time :)

drawing