q describe about components of gdp by considering

Question

Q. Describe about Components of GDP?

• By considering all arrows to and from the goods market we see that Y + I_m = C + I + G + X. Left hand side is the value of all finished goods flowing into goods market and right hand side decomposes all goods into 4 categories. Note that this is merely an accounting identity and it should always hold.
• Moving I_m to the right hand side we have Y = C + I + G + X - I_m. X - Im is known as net exports, NX and NX = - SR. Note that net exports is equal to amount that rest of the world borrows from our country. Hence we can write Y = C + I + G + NX where C, I, G, NX are known as the components of GDP.
• We have another accounting identity from financial markets: S_H + S_G + S_R = I. Using S_H = Y_Disp - C = Y - NT - C, S_G = NT - G and S_R = Im - X we get Y - NT - C + NT - G + Im - X = I that is equivalent to accounting identity from the goods market. So if the accounting identity from financial markets holds, identity from the goods market should hold and vice versa. Though the most significant relationship to remember is

Y = C + I + G + NX