How would an increase in the trade deficit affect GDP?
As per the majority of sources I’ve read such as Investopedia, they claim that GDP would decrease due to a decrease in the NX component of the GDP formula. However, as far as I know the C, I, G and X components include domestic but also imported goods and services. That’s why in order to avoid an overstated reading, we subtract imports in the end. Please correct me if I’m wrong here.
So the way I see it in that sense is that GDP would only fall if there was a decrease in C, I, G and X of domestic goods & services meaning the trade deficit could widen and have no effect on GDP as long as those 4 elements were to remain constant.