Question

The formula for Gross Domestic Product (GDP) is as follows: Y = C + I +...

The formula for Gross Domestic Product (GDP) is as follows:

Y = C + I + G + NX

Define the variables in the equation and give an example for each of them with the exception of Y.

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Answer #2

Y = C + I + G + NX

C or Consumption: Consumption expenditure is the amount spent in the economy on various goods and services. Consumption is further given by where is disposable income, that is, income after deducting taxes.

I or Investment: It is the investment made in the economy. Investment can be made on various factors of production like raw material, plant and equipment, and also real estate.

G or Government Expenditure: This is the total spending by the government .

NX or Net Exports: This value is calculated using the following formula: where X is exports and I is imports. This value can be negative for developing economies which depend on imports for development.

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