Question

In the open economy equation Y=C+I+G+NX a. Does C, as used in the above equation, include...

In the open economy equation Y=C+I+G+NX
a. Does C, as used in the above equation, include imported goods and why?
b. Does I, as used in the above equation, include exported goods and why?
c. What is NX? Why do we need this term in this equation?

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Answer #1

Answer : a) No, C do not include imported goods.

Because the given equation shows the GDP formula. For GDP formula C is the consumption expenditure. For GDP the consumption expenditure include only the consumption spending on domestically produced final goods and services. Foe this reason C do not include imported goods.

b) No, I do not include exported goods.

Because the given equation shows the GDP formula. For GDP formula I is the investment expenditure. This investment expenditure include only private investment for businesses. For this reason I do not include exported goods.

c) For GDP formula NX show the net export. NX = Export - Import. In GDP calculation NX is the difference between the value of exported and imported goods and service.

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