Question

23. Gross Domestic Product (GDP) is often stated as a measure of national expenditures. The accounting formula is GDP = Consumption + Investment + Government Spending + Exports – Imports (often written GDP = C + I + G + X - M). Some people holding high public office interpret this to mean that imports (M) reduce real GDP and are therefore to be avoided or minimized. This position is either true or false (hint: C = Consumption includes imports):

True/ False

Answer 1

If Imports are greater than exports, then only the GDP decreases, which is also termed as current account deficit whereas, If Imports are smaller than exports, then GDP increases, which is also termed as current account surplus.

The GDP growth rate is the relative difference or rate of change in GDP from one period to the next. The current account, that is the balance of imports and exports, can increase or decrease GDP and thus it's growth rate.

So, alone Imports can not decrease the real GDP.