Refer to the above diagram where I_g is gross investment, X is exports, G is government purchases, S and S_a are saving before and after taxes respectively, M is imports, and T is net taxes, that is, taxes less transfers.The equilibrium level of GDP for this economy is: A)Y₄. B)Y₃. C)Y₂. D)Y₁.

Question

Quizplus · Accepted Answer

In this diagram, the equilibrium level of GDP is where the total spending (Aggregate Demand) in the economy is equal to the total output (Aggregate Supply) of the economy. This occurs at the point where the I_g line intersects the 45-degree line. This point is labeled as Y₃. Therefore, the answer is B.

Refer to the Above Diagram Where Ig Is Gross Investment

Refer to the Above Diagram Where I_g Is Gross Investment