Government Purchases of Goods and Services

Categories: Econ, Metrics

The U.S. economy is...big. Like...18 trillion dollars big. A lot of Big Macs, Disney plushies from Amazon and Netflix subscriptions. Who's buying all that stuff? Well, all of us of course.

But the biggest single customer?

You can probably guess where we're going, but we'll get back to it in a second. First, a couple basics so you know what we're talking about.

The U.S. economy is measured in GDP, an acronym for Gross Domestic product. Ever seen a baby being born? That's a pretty gross domestic product. But...not what we're referring to here. The GDP we're talking about measures all the stuff produced in a country. All the products made and all the services rendered. It's the grand accounting of what every American does at work every day.

But who's buying all that stuff we make? On the other end of the GDP number are people paying money for all those Big Macs and Disney plushies and subscriptions to Netflix.

Now, back to the original question: who's the biggest single customer for all this stuff? No, not your hoarder Aunt Millie. It’s the federal government.

Collectively, the biggest customer is all of us. Each one of us buying Starbucks fraps on the way home from work and ordering Captain America t-shirts at 3 am. And Aunt Millie subscribing to 45 different magazines that she actually has physically delivered to her house. That's called consumer spending. It makes up the biggest part of U.S. GDP.

Consumer spending makes up about 2/3 of the economy. It represented about $12.8 trillion of the $18.6 trillion of total GDP in 2016. But none of us individually make a big dent on our own. It takes a village to buy all that stuff.

The other third of the economy is split pretty evenly between government and business spending. In fact, government has the slight edge, representing $3.3 trillion of GDP in 2016. By comparison, businesses spent just under $3.1 trillion. So governments in general fueled about a sixth of total purchases in the economy. That counts all levels of government: federal, state, and local.

So that’s government spending on goods and services. It's an economic statistic that tracks the government contribution to Gross Domestic Product. Think of GDP as a simple equation. It consists of consumer spending + business spending + government spending + net exports...net exports representing the amount of U.S. goods and services bought by people overseas (minus the foreign stuff we buy from them).

There are some things to keep in mind about the government spending we're talking about here. There are a few big chunks of government budgets that don't fit into the equation. For instance, this kind of government spending doesn't count interest payments on the debt. Those debt service payments equate to about 6% of the federal budget. It also doesn't count what are called transfer payments. This category includes things like social security payments where the government just sends someone a check...where money is simply transferred from the government's bank account to someone else's.

The figure is only looking at situations where the government directly buys a good or a service, meaning the government's contribution to GDP. If the figure included Social Security payments, then the amount would get counted twice. Once when the government sent the money, and a second time when the person went out and bought something. To avoid that, transfer payments are left out of the figure.

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Econ: What are Government Purchases of G...1 Views

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And finance Allah Shmoop What Our government purchases of goods

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and services Okay people The U S Economy is big

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big I tell you Big eighteen trillion dollars big and

00:15

told a lot of Big Macs Dizzy Plus she's from

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Amazon and Netflix subscription Yeah it's all counted in there

00:20

Well who's buying all that stuff All of us of

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course but the biggest single customer Well you can probably

00:26

guess where we're going with this one from the title

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of the video but we'll get back to that in

00:30

a second The first couple of basic So you know

00:32

what we're talking about The U S economy is measured

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in GDP an acronym that stands for gross domestic product

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You have you ever seen a baby being born That's

00:41

pretty gross domestic product but well that's not what we're

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talking about here The GDP We're talking about measures all

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the stuff produced in a country All the products made

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and all the services rendered its the grand accounting of

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what every American does at work every day and like

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an example of a service is rendered would be like

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an accountant sending you a bill for four hours of

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doing your taxes like that's a service But who's buying

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all that stuff we make Well on the other end

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of the GDP number is all a bunch of people

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paying money for all those Big Macs and Disney Plus

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she's and subscriptions to Netflix All right now back to

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the original question Who is the biggest single customer for

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all this stuff No not your hoarder Aunt Millie It's

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the federal government Uh all right Now collectively the biggest

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customer is well all of us each one of us

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buying Starbucks frappes on the way home from work and

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ordering Captain America T shirts at three a M And

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Gas and Millie subscribing to forty five different magazines that

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she actually has physically delivered to her house on dead

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trees That's called consumer spending It makes up the biggest

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part of the U S GDP and collectively consumer spending

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makes up About two thirds of the economy specifically represents

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about twelve point eight trillion dollars of the eighteen point

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six trillion dollars total of GDP in two thousand eighteen

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here But none of us individually make a big dent

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on our own It takes a village to buy all

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that stuff The other third of the economy is split

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pretty evenly between government and business spending In fact government

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has the slight edge there representing three point three trillion

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dollars worth of GDP purchases By comparison businesses ill spent

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just under three point one trillion ish last year So

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governments in general fueled about a sixth of total purchases

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in the economy that counts all levels of government federal

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state and local So that's government spending on goods and

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services It's an economic stat that tracks the government contribution

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to gross domestic product Think of GDP is a simple

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equation It consists of consumer spending plus business spending plus

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government spending plus net exports right net exports representing the

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amount of U S goods and services bought by people

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overseas Minus the foreign stuff you know we buy from

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them That's what net Well there are some things keep

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in mind about government spending we're talking about here There

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are a few big chunks of government budgets that don't

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really fit into the equation For instance this kind of

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government spending doesn't count interest payments on the debt Those

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debt service payments equate to about six percent of the

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federal budget huge number It also doesn't count what's called

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transfer payments well This category includes things like Social Security

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payments where the government just sent someone to check You

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know money is simply transferred from the government's bank account

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then to someone else's Well the figure is only looking

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in situations where the government directly buys a good or

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a service meaning the government's contribution to G P Right

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now Well it's a figure included Social Security payments Well

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then the amount would get counted twice right once when

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the government sent the money and a second time when

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the person went out and you know about food with

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it Well to avoid that double counting transfer payments are

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left out of the figure Okay quick review People care

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about government purchases of goods and services because well it's

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a major contributor to GDP which measures overall economic production

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It includes all the government purchases of all levels However

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the stats also include a breakdown of federal spending versus

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spending it state and local levels Not everything in government

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budget you are included The stats don't include debt service

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They also don't include what's called transfer payments you know

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things like Social Security and other similar welfare payments While

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consumer spending makes up the biggest chunk of GDP with

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the two third share the federal government makes up the

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biggest single purchaser Yeah even if Aunt Millie gives it 00:04:20.922 --> [endTime] a run for the money

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