De uitgavenbenadering III

Gross private domestic investment, denoted by I, is an essential component of GDP.

It includes two components: Private Fixed Investment or PFI and Change in Private Inventories.

PFI includes both nonresidential and residential fixed investment.

Nonresidential fixed investment refers to expenditures by private businesses on new structures, such as office buildings and warehouses, and purchases of equipment, such as machinery and tools.

Residential fixed investment includes spending by private businesses on new houses and residential buildings. By convention, a new house purchased by a household is also included.

Next, Change in private inventories is the value of the change in stock of inventories held by private businesses during a period.

For example, imagine a table manufacturing firm starts the quarter with eight unsold tables and ends with ten. It adds two tables to its inventory. The market value of these two tables adds to investment.

In contrast, a reduction in inventories means a negative change, which reduces investment.

PFI and Change in Private Inventories help to understand future production capacity.