- This topic has 5 replies, 2 voices, and was last updated 5 months ago by
.
- Posts
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.
Many thanks for your reply.
So does C = total consumption of goods and services in Country A, regardless of where they were produced? As opposed to C = total consumption of goods and services in Country A that were specifically produced by Country A.
Is this also true for the Government Expenditure and Investment figures?
Thank you.
1 Yes. C = total consumption irrespective of source of the goods.
2 Yes. Government spending is potentially part of the GDP, but if the government spends in importing products, eg weapons, this does not help domestic wealth and this needs to be removed to get the GDP figure.
- The topic ‘In the GDP formula, why are Imports (I) subtracted rather than simply ignored?’ is closed to new replies.