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How to Calculate Private Domestic Investments

Original post by Walter Johnson of Demand Media

Calculating the gross private domestic investment (GPDI) figure is normally performed by the Bureau of Labor Statistics (BLS) and some private banks. It is a very important figure because it shows how much economic activity in the country in a given time period will actually be the result of the production of physical goods. This eliminates data, knowledge, services, interest or imports from the equation. GPDI is an aggregate figure of all physical objects created by the U.S. economy in a specific year. The BLS currently estimates this figure at roughly 15 percent.

Step 1

Understand and clarify your variables. This is the single most important element in calculating the GPDI. The variables are residential structures, fixed non-residential structures, and all equipment and products of that equipment so long as they are physical. Recently, the BLS has added software production to the list of physical products. The largest single item is normally fixed non-residential investment.

Step 2

Eliminate all elements of the economy that are not physical. Those who speculate on currency prices or changes in stock prices are not adding to the GPDI. These people work with and profit from physical objects after they have been created. Therefore, they do not count in the GPDI measure. While software is included in the total, the data programmed into it is not. This means that a statistical software package that does regression analysis is part of GPDI, and the data that a researcher enters into the system is not. As the economy blurs the distinction between physical and knowledge assets, these variables will become harder to define.

Step 3

Eliminate any imports. This includes any imports made by U.S. companies from abroad. Since this is a gross domestic measure, anything not made on U.S. soil should be eliminated. A gross national figure would include these, therefore, the GPDI includes only things made in the U.S.

Step 4

Add all of these together. There is a residual category that takes the largest fixed non-residential investment inventory and subtracts it from the remaining variables. This is a subset of GPDI in that it is the physical machinery and products, including plants and land, that is attached to the business community. In other words, the residual category takes everything that is specifically created by business as a physical, economic product.

                   

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About the Author

Walter Johnson has more than 20 years experience as a professional writer. After serving in the United Stated Marine Corps for several years, he received his doctorate in history from the University of Nebraska. Focused on economic topics, Johnson reads Russian and has published in journals such as “The Salisbury Review,” "The Constantian" and “The Social Justice Review."

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