Explain What Net Exports Are and Why They Are Included

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The Answer is Net exports are the difference between exports (sales of U.S. - produced goods and services to foreigners) minus imports (purchase of foreign-made goods and services by the U.S.). The reason it is included in the definition of GDP is straightforward. Consumption, gross investment and government spending include spending on goods produced at home and abroad. That means that if we stop here we have an overstatement of GDP if we do not subtract imports. Similarly, those same expenditure components do not include goods that were produced here but not sold here. Therefore, we must add in exports so that the GDP figures do not understate production.

Explain What Net Exports Are and Why They Are Included

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