Question

Below is the National Income equation showing the component of aggregate demand;
GDP (Y) = C + I + G + (X - M)
Which component of the equation represent external demand?

Answer 1

(X - M) represents external demand in the National Income equation. This component represents net exports, with exports (X) being the amount of goods and services produced domestically and sold abroad, and imports (M) being the amount of goods and services produced abroad and purchased domestically.

Answer 2

Which component above relates to an activity of the household sector?

Answer 3

C represents consumption by households in the National Income equation. This component includes expenditures on goods and services by households, such as food, clothing, housing, and entertainment.