In the full aggregate expenditures model with net exports included
A) C + G + X = S + T + M.
B) C + G + M = S + T + X.
C) I + G + M = S + T + X.
D) I + G + X = S + T + M.

Question

Quizplus · Accepted Answer

The full aggregate expenditures model with net exports included is expressed as:

C + I + G + (X – M) = GDP

Where C is consumption expenditures, I is investment expenditures, G is government expenditures, X is exports, and M is imports. To simplify this equation, we can rewrite it as:

C + I + G = GDP – (X – M)

This can further be manipulated to:

C + I + G + M = GDP – X

Now, since GDP = C + I + G + X (since net exports are already subtracted in the above equation), we can substitute GDP in the above equation to get:

C + I + G + M = C + I + G + X – X

Simplifying:

C + I + G + M = C + I + G

Which leads to:

M = 0

This means that in the full aggregate expenditures model with net exports included, imports are assumed to be zero. Now, we can rewrite the equation as:

C + I + G + X = GDP

And further simplify to:

C + G + I + X = S + T + M

Where S is saving and T is taxes. This is the equation where we include net exports in the full aggregate expenditures model. Therefore, the correct answer is D: I + G + X = S + T + M.

In the Full Aggregate Expenditures Model with Net Exports Included