Reply To: Definition of GDP


GDP includes the market value of all final goods and services produced during some period of time. Investment, then, are factors of production (mainly capital goods) purchased by entrepreneurs and used by them instead of becoming part of the product they produce which are sold to someone else who then uses them. “Investment” in GDP accounts for the market value of capital capacity, i.e., assets, owned by the entrepreneur throughout the time frame of production. An auto entrepreneur, for example, owns a factory. He holds onto the factory as an asset for decades across hundreds of production runs for which he is purchasing materials and labor. Thus, his “investment” included in GDP is the market value of maintenance and additions to his capital capacity.