Explain why exports are added to, and imports are subtracted from, aggregate expenditures in moving from a private closed economy to a private open economy.
What will be an ideal response?
Exports must be added to aggregate expenditures because they represent sales of current output which would not have been counted elsewhere in summing up total expenditures. Imports must be subtracted from aggregate expenditures because they would be included in any summing of expenditures on final goods and services, but they do not represent goods or services produced here. Thus, to have an accurate estimate of domestic production, their value must be subtracted from the total expenditures.
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Assume individuals consider only the medium run effects of changes in future macro variables when forming expectations of future output and future interest rates. Suppose current taxes are cut AND that individuals expect future taxes to decrease. Given this information, we know with certainty that
A) current output and the current interest rate will both increase. B) current output will increase. C) the current interest rate will increase. D) the expected future interest rate will increase.
In order to reduce the possibility of adverse selection, banks should raise the interest rates charged on loans
a. True b. False Indicate whether the statement is true or false