Question

To prevent overstating the value of domestic production, the amount spent on imported goods in the U.S. μst be subtracted from exports or total spending because

a) It reflects the trade deficit
b) It accounts for inflation
c) It balances the budget
d) It adjusts for foreign investments

Answer 1

The reason why the amount spent on imported goods in the U.S. must be subtracted from exports or total spending is because it reflects the trade deficit. By subtracting the amount spent on imports from the total spending or exports, it allows us to accurately measure the value of domestic production without overstating it.

Step-by-step explanation:

The reason why the amount spent on imported goods in the U.S. must be subtracted from exports or total spending is because it reflects the trade deficit.

A trade deficit occurs when the value of a country's imports exceeds the value of its exports. By subtracting the amount spent on imports from the total spending or exports, it allows us to accurately measure the value of domestic production without overstating it.

For example, if the U.S. exports $100 billion worth of goods but imports $120 billion worth of goods, the trade deficit would be $20 billion. By subtracting the $20 billion from the total spending or exports, we can determine the true value of domestic production.