Question

Y = C + I + G + (N-X), Explain what each component in this equation stands for.

Now show long run equilibrium on a graph using Aggregate Demand and Aggregate Supply curves. Make sure to label everything.

?this essay question, please explain detailely?

Answer 1

Y = C + I + G + (N-X)

Here, C stands for consumption Level in the economy. This gives the information about population’s propensity to consume (MPC) and save (MPS).

I denotes level of investment at a particular time in the economy.

G denotes the spending done by the government for the betterment of the economy.

N-X represents net exports which is excess of exports. If N-X turns out to be positive, it’s called trade surplus and if it’s negative for an economy, it’s said to be facing a deficit.