Why are imported final goods subtracted in GDP accounting and how does this relate to welfare?
Answer and explanation
Correct answer: Because they are not domestic production although they may raise domestic consumption welfare
GDP measures production within domestic territory, not every good purchased by domestic residents. In the expenditure identity, imports are subtracted from consumption, investment, and government spending because those expenditures may include foreign production. Imported final goods can still increase consumer utility and living standards, so option C correctly separates the production boundary of GDP from consumption welfare.
Frequently asked questions
What is the correct answer to this question?
Because they are not domestic production although they may raise domestic consumption welfare
Why is this the correct answer?
GDP measures production within domestic territory, not every good purchased by domestic residents. In the expenditure identity, imports are subtracted from consumption, investment, and government spending because those expenditures may include foreign production. Imported final goods can still increase consumer utility and living standards, so option C correctly separates the production boundary of GDP from consumption welfare.
Which subject and chapter does this question cover?
This is a Class 11 Economics question. Chapter: National Income and Related Aggregates. Topic: GDP and Welfare.
