ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -The GDP calculation accounts for spending on both exports and imports. Thus, a country’s GDP is the total of consumer spending (C) plus business investment (I) and government spending (G), plus net exports, which is total exports minus total imports (X – M).

Detailed explanation-2: -The reason imports are subtracted in the standard national income identity is because they have already been included as part of consumption, investment, government spending, and exports. If imports were not subtracted, GDP would be overstated.

Detailed explanation-3: -The net export component of GDP is equal to the value of exports (X) minus the value of imports (M), (X – M). The gap between exports and imports is also called the trade balance. If a country’s exports are larger than its imports, then a country is said to have a trade surplus.

Detailed explanation-4: -A nation’s net exports number is a straightforward calculation: The value of its total exports minus the value of its total imports equals its net exports. A positive net export number indicates a trade surplus, while a negative number means a trade deficit.

Detailed explanation-5: -Answer and Explanation: The amount spent on imports has to be subtracted from the GDP when the expenditure approach is used. This is because the amount spent on imports is not on goods and services produced by the country’s own firms. It is the amount spent on goods and services produced in other countries.