What happens to GDP when the dollar growth in imports exceeds the dollar growth in domestic consumption?

When the dollar growth in imports exceeds the dollar growth in domestic consumption, GDP is likely to decline. GDP, or Gross Domestic Product, is calculated based on the value of all final goods and services produced within a country during a specific period. It includes consumption, investment, government spending, and net exports (exports minus imports).

If imports are growing at a faster rate than domestic consumption, this means that more money is being spent on foreign goods instead of domestic goods. A rise in imports that surpasses domestic consumption indicates that the economy is essentially buying more from other countries than it is producing and consuming locally. This can lead to a decrease in net exports, which is a component of GDP calculation.

In terms of economic health, this situation may reflect weaker domestic demand or competitiveness, as consumers are favoring imported goods over domestic products. Therefore, the overall effect of higher import growth relative to domestic consumption is a downward pressure on GDP, explaining why the answer indicates a decrease.