Why do we subtract import spending from total expenditures?

What will be an ideal response?


Import spending is defined as spending on goods and services that are produced in foreign countries. When we total up consumption expenditures, investment spending, and government spending, this total includes spending on goods and services, regardless of where they are produced. That is, it includes some import spending. We must then subtract the value of import spending from total expenditures because we would be including spending on goods and services that is not the result of production of newly produced goods and services in the United States. We want total expenditures to reflect expenditures on final goods and services produced in the domestic economy.

Economics

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Economics