Expanded Aggregate Demand Equation
By substituting the specific functions for consumption, investment, and net exports into the aggregate demand identity, we can express the full aggregate demand (AD) for an open economy with a government. The resulting equation is: . This formula shows how aggregate demand is determined by autonomous consumption (), the marginal propensity to consume (), the tax rate (), income (), autonomous investment (), the interest rate sensitivity of investment (), the interest rate (), government spending (), exogenous exports (), and the marginal propensity to import ().
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