If the equilibrium level of GDP in a private open economy is $1,000 billion and consumption is $700 billion at that level of GDP, then
A) saving must be $300 billion.
B) net exports must be $300 billion.
C) S + C must equal $300 billion.
D) Ig + Xn must equal $300 billion.

Question

Quizplus · Accepted Answer

In a private open economy, the equilibrium level of GDP (Gross Domestic Product) is determined by the equation GDP = C + I + G + (X - M), where C is consumption, I is investment, G is government spending, and (X - M) is net exports (exports minus imports). In this scenario, government spending is not mentioned, implying it's a private economy, so the equation simplifies to GDP = C + I + (X - M). Given that GDP is $1,000 billion and consumption is $700 billion, the sum of investment (I) and net exports (X - M), which is denoted as Ig + Xn in the options, must account for the remaining $300 billion to balance the equation. This is because all components of GDP other than consumption must equal the difference between total GDP and consumption.

If the Equilibrium Level of GDP in a Private Open