The components of aggregate expenditure that are influenced by real GDP are _____.
A: consumption expenditure, government expenditure, investment, and imports
B: consumption expenditure, investment, and imports
C: investment, exports, and imports
D: Consumption expenditure and imports.
The correct answer is option D.
The components of aggregate expenditure that are influenced by real GDP are consumption expenditure and imports. So the correct option is D.
Consumption and imports are two of the components of aggregate expenditure, which are influenced by real GDP. So, there is a two-way link between aggregate expenditure and real GDP. Other things remain the same. It means that an increase in real GDP increases the aggregate expenditure.
- An increase in real GDP increases aggregate planned expenditure, and
- An increase in aggregate expenditure increases real GDP.
Consumption expenditure is a function of real GDP. It is because disposable income depends on real GDP. The real GDP minus net taxes is disposable income. Net taxes are equal to the taxes paid to the government minus the transfer payments received from the government.
Imports in the United States are determined by three main factors:
- U.S. real GDP
- Prices of foreign-made goods and services relative to the prices of similar U.S.-made products and services
- Foreign exchange rates
When other things are equal, the higher the real GDP of the U.S., the higher is the quantity of U.S. imports.