Encyclonomic WEB*pedia: GOVERNMENT CONSUMPTION EXPENDITURES AND GROSS INVESTMENT

GOVERNMENT CONSUMPTION EXPENDITURES AND GROSS INVESTMENT:
The official item in the National Income and Product Accounts maintained by the Bureau of Economics Analysis measuring government purchases undertaken by the government sector. Government consumption expenditures and gross investment averages between 15-20 percent of gross domestic product. As might be expected, this percentage tends to be ebb and flow with the political winds. Some political leaders prefer more government activity, others less. However, this percentage is even more dependent on military conflicts and wars that require massive government activity. The other official expenditures included in the National Income and Product Accounts are personal consumption expenditures, gross private domestic investment, and net exports of goods and services.
Government consumption expenditures and gross investment is the official government measure of government purchases undertaken by the government sector. It seeks to quantify that portion of gross domestic product that is purchased by the government sector and which is used to pursue government functions. These expenditures purchase a wide range of goods and services, from aircraft carriers to army boots, from administrative salaries to ammunition, from school buildings to street lights.
Consumption and Investment
Using the extended term government consumption expenditures and gross investment, rather than the simpler term government purchases, provides a relatively descriptive summary of government activity. Government purchases are used for BOTH consumption goods and capital goods. That is, government buys some goods that provide current satisfaction (employee wages, school lunches, and Congressional travel), and other goods that enhance the long term productive capacity of the economy (streets, highways, and buildings).
Back in the ancient days of yore (before the 1980s), government purchases were merely government purchases, with the implication that such spending was largely dumped into a black hole. The modern National Income and Product Accounts take into consideration that government buys a variety of different types of goods, especially some consumption and some capital.
Government Times Three
Government consumption expenditures and gross investment is one of three related terms reflecting spending activities by the government sector. Government expenditures and government purchases are the other two terms. They range from the broadest (government expenditures) to the official measurement (government consumption expenditures and gross investment). Here is an overview of all three:
Government Expenditures: This is the term for ALL spending by the government sector. It includes spending for the purchase of goods and services which falls under the title of government purchases. It also includes expenditures that are NOT for goods and services, which are termed transfer payments.

Government Purchases: This is the specific term referring to actual expenditures on final goods and services, or gross domestic product, by the government sector. It specifically excludes transfer payments.

Government Consumption Expenditures and Gross Investment: This is the official measure of the government purchases component of aggregate expenditures used in the calculation of gross domestic product. This term reflects the fact that the government sector purchases both consumption goods and capital goods.
Two Categories
Government consumption expenditures and gross investment is officially separated into two major categories in the National Income and Product Accounts: federal purchases and state and local purchases.
Federal Purchases: About one-third of total government purchases are those made by the U.S. federal government (Congress, the President, and the vast array of federal agencies). Federal purchases are divided into two subcategories: national defense and nondefense. National defense is about two-thirds of federal purchases and nondefense the remaining one-third. National defense and nondefense are further divided into consumption expenditures and gross investment. In both cases, consumption expenditures are 85-90 percent and gross investment is 10-15 percent.

State and Local Purchases: About two-thirds of total government purchases are those made by the fifty state governments, hundreds of city governments, thousands of county governments, and a whole bunch of other local government authorities (such as school districts). Like federal expenditures, state and local expenditures are divided into consumption expenditures and gross investment. Consumption expenditures are roughly 80 percent and gross investment is about 20 percent.
It is worth highlighting that state and local purchases are about twice the size of federal purchases. While activity by the federal government tends to get the most notoriety, state and local governments tend to do most of the work. Another point of interest is that state and local governments tend to devote a bit more to gross investment relative to consumption expenditures, than does the federal government. A last highlight is the relative magnitude of national defense, coming in at 20 percent of total government purchases. This item is one that obviously jumps significantly during wars.
Three More Expenditures
The number crunchers at the Bureau of Economic Analysis separate gross domestic product into expenditures by the four macroeconomic sectors (household, business, government, and foreign). Government consumption expenditures and gross investment are those by the government sector. The official entries in the National Income and Product Accounts for the other three are: personal consumption expenditures (household), gross private domestic investment (business), and net exports of goods and services (foreign).
Personal Consumption Expenditures: The official measure of consumption expenditures on gross domestic product by the household sector. Personal consumption expenditures average about 65 to 70 percent of gross domestic product. These expenditures come in one of three varieties: (1) durable goods, (2) nondurable goods, and (3) services.

Gross Private Domestic Investment: The official measure of investment expenditures on gross domestic product by the business sector. Gross private domestic investment averages about 15 percent of gross domestic product. These expenditures come in two broad categories: (1) fixed investment and (2) changes in private inventories.

Net Exports of Goods and Services: The official measure of net exports of gross domestic product by the foreign sector, which is the difference between exports and imports. Net exports of goods and services also average about 2 percent of gross domestic product, with exports and imports individually in the range of about 10 percent.
Check Out These Related Terms...
     | personal consumption expenditures | gross private domestic investment | net exports of goods and services | government subsidies | current surplus of government enterprises | transfer payments |
Or For A Little Background...
     | gross domestic product, expenditures | government purchases | government expenditures | government sector | gross domestic product | production | product markets | National Income and Product Accounts | Bureau of Economic Analysis | National Bureau of Economic Research |
And For Further Study...
     | macroeconomic sectors | circular flow | business cycles | gross domestic product, ins and outs | gross domestic product, income | gross domestic product, welfare | net domestic product | national income | personal income | disposable income | gross national product | real gross domestic product | saving | political views | government functions | taxes |
Recommended Citation:
     GOVERNMENT CONSUMPTION EXPENDITURES AND GROSS INVESTMENT, AmosWEB Encyclonomic WEB*pedia, http://www.AmosWEB.com, AmosWEB LLC, 2000-2025. [Accessed: December 15, 2025].