What formula represents income output in an economy?

The formula that accurately represents income output in an economy is: Y = C + I + G + (X - M). In this equation, 'Y' stands for national income or output, which is measured through the total spending in an economy.

The components of the formula break down as follows:

• 'C' represents consumption, which is the expenditure made by households on goods and services.

• 'I' denotes investment, which refers to the spending on capital goods that will be used for future production.

• 'G' signifies government spending, encapsulating expenditure by the government on goods and services.

• 'X' symbolizes exports, which are goods and services produced domestically and sold to other countries.

• 'M' indicates imports, which are goods and services produced abroad and purchased domestically.

The net exports section of the formula, expressed as (X - M), reflects the balance between what is sold to other countries and what is bought from them. This balance is crucial for capturing the total economic activity correctly, as it ensures that exports contribute positively to the income output, while imports are subtracted from it since they represent spending on foreign production rather than domestic income.

This understanding is essential in macroeconomic analysis, as it helps in assessing