To simplify the aggregate expenditure model, what must be assumed?
A) that there is no consumption
B) that there are no government purchases
C) that there is no net private investment
D) that there is no capital depreciation and no business saving

Question

To simplify the aggregate expenditure model, what must be assumed?  
A) that there is no consumption 
B) that there are no government purchases 
C) that there is no net private investment 
D) that there is no capital depreciation and no business saving

Quizplus · Accepted Answer

To simplify the aggregate expenditure model, it is assumed that there is no capital depreciation and no business saving. This assumption allows us to ignore the complexities of changes in productive capacity over time and focus solely on the immediate effects of changes in spending on output and income. However, this assumption also means that the model may not be accurate in the long run, as it ignores the importance of investment and savings for future growth and productivity.

To Simplify the Aggregate Expenditure Model, What Must Be Assumed