In the equation GDP = C + I + G + F,in which F equals net export spending (i.e.,total spending on exports minus total spending on imports),imports are subtracted from the other types of expenditures because:
A)imports reduce national welfare.
B)other countries do not import goods from the U.S.
C)it represents a flow of expenditures out of the domestic economy to the rest of the world.
D)the value of imports is difficult to determine due to the fact that they are frequently stated in terms of foreign currency.

Question

Quizplus · Accepted Answer

Imports represent a flow of expenditures out of the domestic economy to the rest of the world, hence they are subtracted from the other types of expenditures. This is because the GDP is a measure of economic activity within a country, and imports represent a leakage of economic activity outside of that country's borders.

In the Equation GDP = C + I + G