In Lithasia, the marginal propensity to consume is 0.4, base consumption is $2,000 . the tax rate is 30 percent of income, national income is $4,000 . investment spending is $1,000 . government spending is $2,500, export earning is $1,500, and import spending is $3,000 . What is the aggregate expenditure of the economy?
Aggregate expenditures are calculated as the sum of consumption, investment, government expenditure, and trade balance.
AE = C + I + G + (EX ? IM)
where C= consumption, I = investment, G = government expenditure, EX = exports, and IM = imports.
In this case, AE = 2,000 + 0.4 (2,000 ? 0.3 × 2,000 . + 1,000 + 2,500 – 1,500 = $4,560
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