Question

Which of the following is correct regarding the role of government in the aggregate expenditure​ model?

A.

Net tax revenues enter the AE function indirectly through its effect on disposable income.Net tax revenues enter the AE function indirectly through its effect on disposable income.

B.

Transfer payments directly affect aggregate expenditures.Transfer payments directly affect aggregate expenditures.

C.

Private saving is always smaller than budget balance.Private saving is always smaller than budget balance.

D.

When government has a budget surplus comma the budget balance will be negative.When government has a budget surplus, the budget balance will be negative.

E.

The budget balance will increase if government spending increases.

The table below shows national income and imports. The level of exports is fixed at

​$340340.

All figures are in millions of dollars.

Income​ (Y)	Imports​ (IM)	Net Exports​ (NX)
1 comma 8001,800	250250	a
2 comma 8002,800	310310	b
3 comma 8003,800	370370	c
4 comma 8004,800	430430	d

On a graph of the net export function for this​ economy, at what level of Y would the NX function intersect the horizontal​ axis?

A.

at​ $0

B.at

​$3 comma 8003,800

C.at

​$1 comma 8001,800

D.at

​$3 comma 300

Answer 1

Sol. A;

Net tax revenues enter the AE function indirectly through its effect on disposable income

The aggregate expenditure model takes into account the expenditure sources of the economy to calculate national income.

Y = a + b (Y-T) + I + G

Y is the aggregate expenditure (AE). b(Y-T) represents the net disposable income which may be utilized for consumption purposes. Transfers and taxes do not affect expenditure directly but indirectly. They affect the AE affecting the amount of disposable income.

Please repost the second question as the question is not clear in its meaning .