In a private closed economy, the two components of aggregate expenditures are:
A) Consumption and government spending
B) Consumption and net exports
C) Consumption, investment, and net exports
D) Consumption and investment

Question

Quizplus · Accepted Answer

In a private closed economy, there is no government sector, and therefore government spending is not a component of aggregate expenditures. The two components are consumption, which is spending by households on goods and services, and investment, which is spending by businesses on capital goods (such as machinery and equipment) that will be used to produce goods and services in the future. Net exports do not play a role in a closed economy because there is no international trade.

In a Private Closed Economy, the Two Components of Aggregate