Suppose that everything produced during the year was bought during the year. Then by adding up all expenditure on final goods and services during the year we would have a measure of GDP, what was produced during the year. This is the rationale behind the expenditure approach to measuring GDP, and with three major adjustments, it is the method by which U.S. GDP is estimated.

First, what if some of what was produced was not bought during the year? Suppose a million dollars worth of furniture, manufactured during the year and so part of that year’s GDP, was not purchased during the year. The national accounts statistician views this extra furniture as having been purchased by the manufacturers themselves for the purpose of augmenting their inventory. In this way, by imaginative accounting, items that were not bought become bought. This technique causes the adding-expenditures approach to measure what was actually produced, namely GDP. Similarly, of course, if during the year people bought more than was produced so that inventories fell, the national accounts statistician records this difference as a negative investment in inventories, lowering the adding-expenditures measure to measure accurately what was actually produced.

Second, what if some things bought during the year were used products, such as antiques, and so do not correspond to that year’s production? Such items are not counted when adding all expenditures, but the fraction of such sales that reflects a purchase of the services provided by the antique dealer is counted.

Third, what if some of the spending during the year was on imported goods and services, or on goods with imported components? Adding up all spending would then overestimate what was actually produced in the United States. This problem is solved by subtracting all imports.