Question:
An increase in which of the following may result in a decrease in aggregate expenditure in an economy?
(1) Consumption expenditure
(2) Government purchases
(3) Import expenditure
(4) Investment expenditure
(5) Inflow of foreign remittances
Correct Answer:
(3)
Answer Explanation:
Aggregate Expenditure ($AE = C + I + G + X – M$). Consumption, Investment, Government Purchases, and Exports are all “injections” that increase AE. Imports ($M$) represent a “leakage” of money out of the domestic economy to foreign producers. Therefore, an increase in import expenditure decreases domestic AE.
Topic: Macroeconomic Equilibrium Year: 2017
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