While exports must be added to the total final expenditures, imports must be deducted from the total final expenditures to arrive at the aggregate demand.

Question: Explain the relationship between exports, imports, and aggregate demand in an economy. Answer: In an economy, the relationship between exports, imports, and aggregate demand is important because it helps us understand the total demand for goods and services in the domestic market. Aggregate demand is the sum of personal consumption, investments, government expenditures, and the difference between exports and imports (net exports). Exports are the goods and services produced domestically and sold overseas, whereas imports are the goods and services bought from other countries. To calculate aggregate demand, we need to deduct imports (goods and services consumed but not produced domestically) from exports and add the result (net exports) to the other components of total final expenditures. In other words, aggregate demand equals personal consumption, investments, government expenditures, and net exports (C + I + G + (X-M)).