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Which of the following expressions is correct? a. AE = C + I + G - NX. b. AE = C + I + G + NX. c....

Question:

Which of the following expressions is correct?

a. AE = C + I + G - NX.

b. AE = C + I + G + NX.

c. AE = C + I + (G - T) + NX.

d. AE = C + I + (G - T) - NX.

Aggregate Expenditure:

In the Keynesian Cross model, equilibrium occurs when planned aggregate expenditure is equal to actual aggregate expenditure. This model builds the basis of the IS-LM model.

Answer and Explanation:

The answer is b).

In the Keynesian Cross model, aggregate expenditure is the sum of all expenditures by various agents in an economy. According to the expenditure approach to GDP accounting, total expenditure is the sum of household consumption (C), investment (I), government expenditure (G), and net exports (NX), thus we have:

  • AE = C + G + I + NX

Learn more about this topic:

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Gross Domestic Product: Using the Income and Expenditure Approaches

from Economics 102: Macroeconomics

Chapter 4 / Lesson 2
35K

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