Question

Imagine the components of aggregate demand are:

Consumption £500 billion

Investment £100 billion

Government spending £200 billion

Import spending £150 billion

Total aggregate demand £900 billion

What is the value of export spending? Explain your answer.

Answer 1

Total aggregate demand = C + I + G + (X – M)

£900 = £500 + £100 + £200 + (X – £150)

£900= £800 + X - £150

£900= £650 + X

X = £900 - £650

X = £250 billion. This is the export spending.

To get export spending, add consumption, investment, government expenditure and the subtract imports. Then subtract the total from total aggregate demand.