How is aggregate demand expressed for an open economy with a government sector ?
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Answer: D. AD = C + I + G + X – Z
Explanation
Open economy aggregate demand includes consumption, investment, and government spending. Net exports calculated as exports minus imports complete the open economy expenditure equation. Subtracting imports ensures only domestically produced goods and services are counted. Macroeconomic models distinguish between closed economies and open international trading systems. Exports add foreign demand to domestic production, while imports divert spending abroad. The symbol Z or M typically represents total national imports in economic equations.
Globalized economies experience significant demand shifts through international trade channels. Governments use fiscal stimulus to influence domestic consumption and investment components. Trade deficits occur when import values exceed export values within the equation. Option A omits government spending and international trade sectors entirely. Option B lacks the vital foreign trade components of exports and imports. Option C incorrectly adds imports instead of subtracting them from aggregate demand.
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