If domestic consumers buy foreign-made goods, why are imports subtracted when calculating GDP by the expenditure method?
Answer and explanation
Correct answer: Because the goods are produced outside the domestic territory
The expenditure identity initially records spending by domestic consumers, firms, and government, including spending on imported goods. However, GDP measures only production within domestic territory. Imports are therefore subtracted from total expenditure so that foreign production is removed and only expenditure corresponding to domestic production remains in GDP.
Frequently asked questions
What is the correct answer to this question?
Because the goods are produced outside the domestic territory
Why is this the correct answer?
The expenditure identity initially records spending by domestic consumers, firms, and government, including spending on imported goods. However, GDP measures only production within domestic territory. Imports are therefore subtracted from total expenditure so that foreign production is removed and only expenditure corresponding to domestic production remains in GDP.
Which subject and chapter does this question cover?
This is a Class 11 Economics question. Chapter: National Income and Related Aggregates.
