On the bubble sheet, mark whether each of the following is:

1. Consumption
2. Government Expenditure
3. Investment
4. An intermediate good, not counted in GDP directly, or
5. None of the above and not counted in GDP.

GDP is output of final goods; the major categories of final goods are

Consumption: everything bought by households that is newly produced, with the single exception of new housing (which is investment);

Investment: durable physical capital, i.e. produced goods that will be used to produce more output, but not themselves wholly used up within the year, bought by businesses; plus new housing; plus in the national income accounts, the change in business inventories [algebraically, i.e. if inventories go down, that change is counted as negative investment]. The reason for counting change in business inventories as investment is that if we did not do that, total expenditure on final goods would not equal total production of final goods -- goods that went into inventories would have been produced, but not purchased by their final user. So because businesses own them, and all expenditure on final goods by businesses is called investment by definition, change in inventories counts as investment. That makes output equal to expenditure on output of final goods for any defined period of time.

Government: all purchases of goods and services by all levels of government.

Net Exports: Exports minus imports, i.e. all sales to foreigners less all purchases from foreigners.

The key equation is GDP = C + I + G + (X - M)

Two key things are NOT part of GDP:

Intermediate Goods: these are goods and services wholly used up within the year to produce other goods and services. Most purchases by businesses of goods and services are of intermediate goods, but they enter into the value of what businesses sell; so if they were included, we would be doing a lot of double counting, which would make the numbers non-useful.

Transfer payments: a big chunk of what governments spend is not on purchases but on transfers; these do not buy final goods when spent by government (they do if, e.g., households later spend them on consumption, but then they are getting counted as consumption), but simply give purchasing power to the recipients (with nothing produced in return). Therefore they are excluded.

Also excluded are financial transactions, e.g. buying stocks or bonds, because you are not buying a good or service, you are buying a financial claim (asset). This may be "investment" from the point of view of the household, but is NOT investment (jargon) as defined in National Income Accounting. Also purchases of already-existing goods [e.g. a used car or house, a baseball that was hit for a home run] are excluded because they are not newly-produced.

OK, now we can answer the questions:

1. Gasoline purchased by a student. 1, Consumption.
2. Gasoline purchased by the FSU Anthropology Department. 2, Government [FSU is a State institution]
3. Gasoline purchased by a private contractor surfacing a road. 4, not in GDP, an intermediate good (the contractor is a business, the gas will be used up within the year)
4. Gasoline purchased by Leon County Public Works Department. 2, Government.
5. Old 1940s gasoline ration coupons purchased by a private collector. 5, they are only bits of paper and they were not produced in the current time period.
6. Diesel fuel purchased by a trucking company to increase its inventory of fuel. 3, this was the trickiest one, and I did not expect most of you to get it -- you would have had to have read the book very carefully. As explained above, increases in inventory are by definition investment.