In an economy with no government or foreign sector, which of the following always holds true, ex-post?
A) Consumption equals investment.
B) Velocity equals money demand.
C) Saving equals consumption.
D) Saving equals investment.

Question

Quizplus · Accepted Answer

In an economy with no government or foreign sector, all savings must equal investments, as there are no other options for where funds can be allocated. Therefore, choice D is correct. Choices A and C do not necessarily hold true as individuals may choose to save or consume different amounts than what is invested. Choice B is also not necessarily true as velocity can fluctuate depending on the level of economic activity and money demand can shift due to changes in interest rates and other factors.

In an Economy with No Government or Foreign Sector, Which