Which of the following correctly represents the formula for calculating GDP using its main components?

• A. GDP = C + G + (X - M)
• B. GDP = C + I + G + X + M
• C. GDP = C + I + G + (X - M)
• D. GDP = C + I + G - (X + M)

Answer: (C)

Verified step by step guidance

1. Step 1: Understand that GDP (Gross Domestic Product) measures the total value of all final goods and services produced within a country during a specific period.
2. Step 2: Recall the main components of GDP using the expenditure approach: Consumption (C), Investment (I), Government Spending (G), Exports (X), and Imports (M).
3. Step 3: Recognize that GDP includes exports because they are goods and services produced domestically and sold abroad, so they add to GDP.
4. Step 4: Understand that imports are subtracted because they represent spending on goods and services produced outside the country, which should not be counted in domestic production.
5. Step 5: Combine these components into the correct formula: \(GDP = C + I + G + (X - M)\), where \((X - M)\) is net exports.