3. The supply side of the national economy

Economics theories all share the same assumption that in the national economy, supply equals demand. This forms the theoretical foundation for the national accounts: the thinking is that the value of production, income and expenditure is the same.

In a closed economy which has neither imports nor exports (i.e. no foreign trade), GDP is the same as the supply side of the national economy. In an open economy that does have foreign trade, imports are included in the supply side of the national economy (and exports are accordingly counted on the demand side). In an open economy then, the supply components or sources of goods and services are domestic production and imports; and the demand components, i.e. where these goods and services can be used, are consumption, investment and exports.

This balance between the supply and demand side of the national economy is usually represented in the following equation:

GDP + M = C + G + I + X,

where:
GDP = gross domestic product
M = imports
C = private consumption
G = public consumption
I = investment
X = exports

Using this equation, GDP can also be represented as follows:
GDP = C + G + I + (X - M),
i.e. GDP is the sum of domestic demand components and net exports.

In Finland the supply side of the national economy breaks down roughly as follows: