While calculating GDP of nation, how personal savings which is not invested in economy or has become part mandatory reserve ratio of government is treated? Similarly do we include import and export of financial asset in Net Exchange(Export - Import)
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1 Answer
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The GDP, as you implied, is represented as follows
Y = C + G + I + nX
Where Y is the GDP, C and G are private and government consumption, and I is the invest in fixed assets
This formula represents the demand for GDP
In a closed market I = S since all savings, for a certain amount of real interest r are allocated to investments in projects that would return r or higher
S then is a supply factor for the demand for I
In an open market, local savings can be invested abroad and foreign savings can be invested locally, via financial assets
nX are net exports of goods and services, these can be financial or other. tourism is, in a way, an export / import service
