How Do Economists Integrate The International Sector (Exports And Imports)

How do economists integrate the international sector (exports and imports) into the aggregate expenditures model International trade is integrated into the aggregate expenditures in an open economy as net exports (exports minus imports). Exports expand the aggregate spending on domestic output while imports contract the aggregate spending on domestic output. Exports create domestic production, income, and employment at home while imports reduce the sum of consumption and investment expenditure. Therefore, imports are subtracted from aggregate expenditures so as not to overstate aggregate expenditures. As a result aggregate expenditure (AE)can be stated as AECI(X-M) where c consumption, Iinvestment, (X-M) net exports (Rios, McConnell, Brue, 2013). Reference Rios, M. C., McConnell, C. R., Brue, S. L. (2013). Economics Principles, problems, and policies . McGraw-Hill. How do economists integrate the public sector (government expenditures and taxes) into the aggregate expenditures model Government expenditure is added into the aggregate expenditures. However only government purchases are included as including transfer payments such as pensions would result in double count. Taxes are leakages from the GDP and are therefore subtracted from aggregate expenditure. Aggregate expenditure stated as AECI(X-M) G where c consumption, Iinvestment, (X-M) net exports and G public expenditure (Rios, McConnell, Brue, 2013). Reference Rios,