Without the government or the foreign sector in the income-expenditure model, consumption equals
A) planned aggregate expenditures plus actual investment.
B) planned aggregate expenditures minus inventory adjustment.
C) planned aggregate expenditures plus planned investment.
D) planned aggregate expenditures minus planned investment.

Question

Quizplus · Accepted Answer

Without the government or foreign sector, the income-expenditure model simplifies to just the domestic private sector. Therefore, consumption equals planned aggregate expenditures minus planned investment. This is because planned aggregate expenditures include consumption, investment, and government spending, but in this simplified model government spending is absent and investment is the only variable besides consumption.

Without the Government or the Foreign Sector in the Income-Expenditure