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In the AD formula C + I + G + X minus M, why is the value of imports subtracted rather than counted as a positive addition to demand?
AImports are seen as harmful and best discouraged
BImports are never bought by domestic households
CGovernment always taxes imports at a fixed rate
DImport income already counted in C goes to foreign firms
Answer & Solution
Correct answer: D. Import income already counted in C goes to foreign firms
1. When a household buys an imported good, that purchase is already counted once inside consumption spending.
2. But the income from that sale goes to a foreign producer, not to domestic output, so it should not count as domestic demand.
3. Subtracting M backs that foreign-bound spending back out of the total.
4. This subtraction does not mean imports are bad for the economy, so option A is the wrong takeaway.
_Source: OpenStax Principles of Macroeconomics for AP Courses (CC BY 4.0), Ch 10 "The Aggregate Demand/Aggregate Supply Model", section 10.4 | Shifts in Aggregate Demand_
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