Even when domestic supplies of those inputs are available, the preferred foreign supplies result in higher employment and greater economic output in the United States by supplying a better intermediate good.
In this case, Fred and Sarah both produce and purchase goods—Fred sells fish to Sarah, and Sarah sells coconuts to Fred. Barney's Bananas Suppose Fred and Sarah "discover" a nearby inhabited island.
Those exports bring money into the country, which increases the exporting nation's GDP. It's also an important, but controversial, political issue. That means that no nation wants a negative trade balance.
However, in the expenditures equation, imports M are subtracted. GDP can be measured equally well by counting either total expenditures or total income. To be clear, the purchase of domestic goods and services increases GDP because it increases domestic production, but the purchase of imported goods and services has no direct impact on GDP.
That occurs because some nations are better at producing certain products than others. Fred catches fish in the bay, and Sarah climbs trees to gather coconuts. Despite some nations' attempts at protectionism, free trade—trade unencumbered by barriers—has recently been the dominant trend for most countries.
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