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Effects of an Open Economy

Which of the ...

Question

Which of the following is not a component of aggregate demand in a two-sector economy?

A

Net Exports

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B

Government Expenditure

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C

Consumption

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D

Both (a) and (b)

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Solution

The correct option is B Net Exports
The aggregate demand in two sector economy only includes the expenditure made by the consumer sector and the producer sector. The expenditure by the government sector and net exports are not included in the two sector economy.

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