In the equation \( GDP(Y) = C + I + G + (X - M) \):
- \( C \) represents consumption,
- \( I \) stands for investment,
- \( G \) is government spending,
- \( X \) is exports,
- \( M \) is imports.
The components that represent external demand are exports (X), as they represent goods and services produced domestically and sold to foreign markets, and imports (M), which are subtracted in the formula since they represent the goods and services consumed domestically that are produced abroad.
Thus, the net exports, represented by \( (X - M) \), indicate the net effect of external demand on the economy. Positive net exports (when exports exceed imports) contribute to GDP, while negative net exports (when imports exceed exports) reduce GDP.