When the economy is in equilibrium,
A) there can be no unemployment.
B) changes in autonomous spending will have no impact on real GDP.
C) planned savings will equal zero.
D) planned investment equals actual investment.

Question

Quizplus · Accepted Answer

When the economy is in equilibrium, it means that planned aggregate expenditure (which includes consumption, investment, government spending, and net exports) equals real GDP. This also implies that planned investment equals actual investment, as firms would adjust their production and investment plans to meet the level of demand in the economy. However, there can still be unemployment in an equilibrium situation, as it only represents a level of output and income that is consistent with the current level of spending. Changes in autonomous spending can still impact real GDP in the short run, as it takes time for wages and prices to adjust to changes in demand. Planned savings can be positive or negative and do not necessarily have to equal zero in an equilibrium situation.

When the Economy Is in Equilibrium