In an open economy, the national income (Y) of the economy is : (C, I, G, X, M stand for Consumption, Investment, Govt. Expenditure, total exports and total imports respectively.)

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Q: 94 (IAS/2000)
In an open economy, the national income (Y) of the economy is : (C, I, G, X, M stand for Consumption, Investment, Govt. Expenditure, total exports and total imports respectively.)

question_subject: 

Economics

question_exam: 

IAS

stats: 

0,196,62,10,22,196,30

keywords: 

{'national income': [0, 2, 2, 4], 'open economy': [0, 1, 0, 0], 'economy': [1, 3, 8, 35], 'expenditure': [2, 0, 2, 4], 'total exports': [0, 1, 1, 0], 'total imports': [0, 0, 1, 0], 'consumption': [2, 4, 6, 10], 'investment': [0, 0, 0, 1], 'govt': [0, 2, 0, 4]}

The correct equation for national income (Y) in an open economy is:

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

In this equation:

- C represents consumption, which is the total spending by households on goods and services.

- I represents investment, which is the spending by businesses on capital goods and new productive capacity.

- G represents government expenditure, which includes all government spending on goods, services, and transfer payments.

- X represents total exports, which are the goods and services produced domestically and sold to other countries.

- M represents total imports, which are the goods and services purchased from other countries and brought into the domestic economy.

The equation includes the net exports term (X - M) to account for the difference between exports and imports. It represents the net flow of goods and services across borders and captures the impact of international trade on the national income.

Therefore, the correct equation for national income in an open economy is Y = C + I + G + (X - M).

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