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Gross Private Domestic Investment: Definition & Formula Video

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  • 0:02 GPDI Defined
  • 0:30 Specific Factors of GPDI
  • 1:20 Calculating the GPDI
  • 1:52 What GPDI Really Looks Like
  • 3:35 Lesson Summary
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Lesson Transcript
Instructor: Adam Gifford
In this lesson, you will define the concept of gross private domestic investment (GPDI), list the factors that are used to determine it, and learn to calculate it using a simple formula.

GPDI Defined

There are many different methods used by politicians and economists to measure the relative health of a given country's economy. Some measurements measure the overall health of an economy while others measure more specific factors within that economy. Gross private domestic investment (GPDI) falls under the latter because it is used to measure a specific factor within a country's economy. GPDI is defined as the amount of money that domestic businesses invest within their own country.

Specific Factors of GPDI

In order to calculate gross private domestic investment, it is important to first know the three factors that make up the calculation. GPDI includes the following types of investment:

  1. Business expenditures for things like machines, tools, land, and buildings
  2. Expenditures by landlords for things like home improvements or new buildings
  3. Changes in inventories that are held by businesses. In order to determine this number, you need to subtract the business inventories at the beginning of the year from the business inventories at the end of the year. This number can be negative if there is a decrease in business inventories instead of an increase.

Gross private domestic investment is the sum of these three factors. The sum will always be expressed in a country's local currency; however, when comparing different countries, the United States Dollar is used as a common currency.

Calculating the GPDI

In order to simplify the formula used to determine gross private domestic investment, we will use some abbreviations:

  • GPDI = gross private domestic investment
  • C = business expenditures for things like machines, tools, land, and buildings
  • R = expenditures by landlords for things like home improvements or new buildings
  • I = changes in inventories that are held by businesses

The formula to calculate gross private domestic investment is as follows:

GPDI = C + R + I

What GPDI Really Looks Like

For this example, let's start with a fictitious country called Econostan. Here is some of the information about Econostan's economy from last year:

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