Demand for domestic goods
Topic: Balance of Payments and Exchange Rates · NCERT: Class 12, Ch 6 "Open Economy Macroeconomics"
Meaning
Demand for domestic goods is the demand for output produced inside the country. The formula is C + I + G + X − M. Exports (X) are added because foreigners also buy home-made goods. Imports (M) are subtracted because part of Indian spending goes to foreign-made goods. In equilibrium, national output (Y) equals this demand.
Example
In the NCERT exercise C = 40 + 0.8Y_D, T = 50, I = 60, G = 40, X = 90 and M = 50 + 0.05Y, equilibrium output is Y = 560. Here C + I + G = 448 + 60 + 40 = 548, which is domestic demand for goods. Adding exports of 90 and subtracting imports of 78 gives 560, which is demand for domestic goods.
Don't confuse with
- Domestic demand for goods (C + I + G): this is total spending by residents. It includes the part they spend on imports. Demand for domestic goods counts only demand for home-produced output, whoever the buyer is.
Related concepts
- Open economy
- Closed economy
- External sector
- Export
- Import
- Net exports
- Marginal propensity to import
- Autonomous imports