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.
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
Become a member and unlock all Study Answers
Try it risk-free for 30 daysTry it risk-free
Ask a question
Our experts can answer your tough homework and study questions.Ask a question Ask a question
Learn more about this topic:
from Economics 102: MacroeconomicsChapter 4 / Lesson 2