Question

Why are net exports added in the total expenditure in measuring National income by Expenditure method?

Answer 1

Exports represent the expenditure by foreigners on the goods and services exported by the country. It is to be added to the GDP because goods and services exported are part of the domestic product. Again, imports represent the expenditure made by the residents of the country on imported goods and services. It should be subtracted from the total expenditure as the goods and services imported are not part of the domestic production of the country. Hence, it cannot be a part of GDP. Therefore, (exports − imports), i.e., net exports, is a part of GDP and hence of NI.