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Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA BT – FIA FBT › In the GDP formula, why are Imports (I) subtracted rather than simply ignored?
GDP = total production of goods and services by Country A
C = total consumption of Country A’s produced goods and services
I = total investment in Country A’s produced goods and services
X = total exports of Country A’s produced goods and services
I = total imports of Country B’s goods and services
Thus, I should be ignored, not subtracted.
For example, suppose Country A produces 100 chairs, and also imports 30 chairs from Country B. Country A still produced 100 chairs. It didn’t produce 100 – 30 = 70 chairs.
So why is I subtracted rather than ignored?
Thank you.
In your example if a country has no imports, exports or investment and produces 100 chairs the gdp is 100.
However, if 100 chairs are bought (C) by the population and 30 have been imported (I) gdp is 70.
D = domestic.