The AE function for an open economy with government can be written as
A)AE = C + I - G + (X - IM).
B)AE = C + I + G - (X - IM).
C)AE = C + I - G - (X + IM).
D)AE = C + I + S + (X + IM).
E)AE = C + I + G + (X - IM).

Question

Quizplus · Accepted Answer

The correct AE function for an open economy with government includes all components of aggregate demand: consumption (C), investment (I), government spending (G), and net exports (X - IM). Therefore, the correct formula is AE = C + I + G + (X - IM), which is option E.

The AE Function for an Open Economy with Government Can