In an open economy, the national income (Y) of the economy is: (C, I, G, X, M stand for Consumption, Investmen

Question

In an open economy, the national income (Y) of the economy is: (C, I, G, X, M stand for Consumption, Investment, Govt. Expenditure, total exports and total imports respectively.)

Accepted Answer

National income in an open economy is calculated using the expenditure method. It represents the total spending on final goods and services produced within a country.

The components are:
1. C: Private consumption expenditure.
2. I: Investment expenditure by businesses.
3. G: Government spending on goods and services.
4. X minus M: Net exports, which is the difference between total exports and total imports.

In an open economy, we must account for international trade. We add exports because they represent demand for domestically produced goods. We subtract imports because that spending goes toward foreign goods and is already included in C, I, and G. Therefore, the correct formula is National Income equals Consumption plus Investment plus Government Expenditure plus the net of Exports minus Imports. This makes option C the correct representation.

Answer

$Y = C + I + G + X$

Answer

$Y = C + I + G - X + M$

Answer

$Y = C + I + G + (X - M)$

Answer

$Y = C + I - G + X - M$

In an open economy, the national income (Y) of the economy is: (C, I, G, X, M stand for Consumption, Investment, Govt. Expenditure, total exports and total imports respectively.)

Explanation

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