Question

In an open economy, the components of aggregate demand are ______.

Options

• C + I + G + X

• C + I + G + M

• C + I + G + Net exports

• I + G + Net exports

Answer 1

In an open economy, the components of aggregate demand are C + I + G + Net exports.

Explanation:

In an open economy, the components of aggregate demand include transactions with the rest of the world alongside domestic sectors. Mathematically, it is expressed as AD = C + I + G + (X - M), where C stands for private consumption expenditure, I for private investment expenditure, G for government spending, and (X − M) represents Net Exports (total exports minus total imports).