components of expenditure (C + I + G + NX)

If you measure GDP by who buys the final output, every dollar spent in the economy falls into one of four buckets. Households buy things, businesses build and stock up, the government spends, and the rest of the world buys our exports while we buy their imports. Economists give these four buckets short names and write GDP as Y equals C plus I plus G plus NX. It is the single most-used formula in macroeconomics.

C is consumption: spending by households on everyday goods and services, from groceries to haircuts to streaming subscriptions, usually the biggest bucket, often around 60 percent of GDP. I is investment, which in economics means spending by firms on new capital (machines, factories, software) plus new housing and additions to inventories; it does not mean buying shares. G is government spending on goods and services such as roads, schools, defence and public-sector salaries, but it excludes transfer payments like pensions, because those are not payments for current production. NX is net exports, exports minus imports; we add exports because foreigners are buying our output, and subtract imports because spending in the other three buckets includes foreign-made goods that were not produced here. So Y equals C plus I plus G plus (X minus M).

This breakdown matters because it tells you where demand in the economy is coming from and where it might be weakening. In a downturn, governments and central banks watch which bucket is sagging: if households stop spending (C falls) or firms stop investing (I falls), policy may try to prop up demand. The formula is also the gateway to deeper macro ideas like the multiplier, the paradox of thrift, and how government and trade policy ripple through total output.