In the basic Keynesian model of national income determination, aggregate expenditures refer to
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A. B. C. D. E.C
Aggregate expenditures are the sum of planned consumption, investment, government expenditures and net exports.
In the basic Keynesian model of national income determination, aggregate expenditures refer to the total amount of spending in an economy. This concept is crucial in understanding how changes in spending can impact national income and output.
Among the provided answer choices, the correct option is C. "Spending for consumption, investment and exports less imports plus government purchases of goods and services." Let's break down this definition further:
Consumption: This refers to the spending by households on goods and services. It includes purchases such as food, clothing, housing, and other consumer goods. Consumption is typically the largest component of aggregate expenditures in most economies.
Investment: Investment represents the spending by businesses on capital goods, such as machinery, equipment, and buildings. This spending is aimed at increasing future production capacity or improving efficiency.
Exports: Exports are the goods and services produced within a country's borders and sold to other countries. Export spending adds to the aggregate expenditures as it represents foreign demand for a country's goods and services.
Imports: Imports refer to goods and services produced in other countries and purchased domestically. Since imports are not produced within the country, they are subtracted from aggregate expenditures, as they represent spending that flows out of the country's economy.
Government purchases of goods and services: This component represents the spending by the government on goods and services. It includes purchases of items such as infrastructure projects, defense spending, education, and healthcare.
By summing up consumption, investment, exports, and government purchases and subtracting imports, we arrive at aggregate expenditures. It represents the total spending in an economy on domestically produced goods and services.
Option A is incorrect because it refers to the demand for consumer goods if all citizens had all the income they wanted, which does not take into account other components of spending or the role of government or foreign trade.
Option B is incorrect because it excludes government spending from the calculation of aggregate expenditures.
Option D is incorrect because it focuses solely on consumer spending measured in constant prices, without considering other components or the impact of imports and government spending.
Option E is incorrect because it states that aggregate expenditures correspond to the amount of GDP that could be produced if unemployment were zero, which overlooks the influence of other factors on aggregate expenditures.
Therefore, option C is the most accurate and comprehensive definition of aggregate expenditures in the basic Keynesian model of national income determination.