In an open economy, the GNP is measured as_____________?
Answer Details
In an open economy, GNP (Gross National Product) is measured as: C + I + G + (X - M), where:
- C represents private consumption expenditures by individuals and households.
- I represents gross investment by businesses, such as spending on capital goods like machinery, buildings, and equipment.
- G represents government spending on goods and services.
- X represents exports, which are goods and services produced domestically and sold to foreign countries.
- M represents imports, which are goods and services produced in foreign countries and purchased domestically.
The formula above takes into account both domestic and foreign economic activities. The net difference between exports (X) and imports (M) is included to determine the impact of international trade on the economy.
Therefore, by using the formula C + I + G + (X - M) to measure GNP in an open economy, we can get a better understanding of the overall economic activity, including the impact of international trade on the economy.