Exports and imports affect domestic production in a way that foreign spending is made on goods produced within the border of the United States in the form of exports denoted by X, thereby increasing gross production by expenditure approach.
Thus, it must be included in determining the GDP, whereas, domestic spending on foreign products in terms of imports, denoted by M, must be excluded from the same since it decreases the overall domestic production or expenditure incurred within the domestic boundaries of the country.
"Net exports" is the excess of exports over imports.
That means,
GDP= C+I+G+(X-M)
where, C= Personal Consumption Expenditure, I= Private Domestic Investment, G= Government Expenditure, X= Exports, M= Imports
Here, Net Exports= Exports(X)- Imports(M)
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