Question

why does the spending approach to gdp include net exports? (exports - imports) in its formula?

why does the spending approach to gdp include net exports? (exports - imports) in its formula?

Homework Answers

Answer #1

GDP means total value of final goods and services produced in a country within a given period of time. Net exports include two components one is export and another is import. Export represent domestically produced goods that are purchased by foreigners that's why it is included in GDP. Exports are product produced domestically and it is value of final goods and services produced in a given period of time so it is included in GDP and exports are added to the GDP. Imports are substracted from GDP because it is value of goods and services produced in foreign country and purchased by domestic country.

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