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The definition of GDP you arrive at the following expression: c+i+g+x-m=y=c+s+t. What are the imporant economic relationships that can be derived from this expression related to the definition of GDP.
The relationship that can be derived is C+I+G+(X-M)=Y=C+S+T+Rf, where if you drop the Rf and place all variables in real terms we have c+i+g+x-m=c+s+t, where y= real output. Real output is defined as y=Y/P, P is an index price level for the economy, the GDP Price deflator. y=Y-P, where y,Y, and P indicate the rate of growth of these variables. y=c+i+g+(x-m) as this maybe interpreted as real output,y, must be matched by real aggregate expenditure, c+i+g+x-m and savings,s, must be matched by the uses of saving, inventment, government deficit and net exports.
This points out an important condition that government deficits, (g-t)>0 may crowd out private investment expenditure since the amount of savings is fixed each year.
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