Aggregate expenditure is $200. Consumers pay $70 in net taxes and spend $80 on products and services. Disposable income is $130.

Question

Quizplus · Accepted Answer

Aggregate expenditure is equal to disposable income in a closed economy without government spending or international trade. Thus, AE = C + I + G, where C is consumer spending, I is investment spending, and G is government spending. In this scenario, we don't have information on I and G, but we know that C = $80 and net taxes = taxes paid ($70) - transfer payments (0) = $70. Thus, disposable income = $130 (given) = C + net taxes = $80 + $70. Therefore, AE = C + I + G = $80 + I + G = disposable income + net taxes = $130 + $70 = $200. The equality holds, so the statement is true.

Aggregate Expenditure Is $200