In the most basic model of the economy, equilibrium output is achieved when:

Question

Quizplus · Accepted Answer

All of the choices are correct.

A) If there is no change in inventories, it means that firms are producing the exact amount of output that is demanded by consumers and businesses.

B) C+I (consumer spending plus investment) represents the total aggregate demand in the economy. Equilibrium output occurs when this demand equals the total output produced in the economy.

C) The 45 degree line represents all points where output equals income. In equilibrium, output must equal income. Therefore, the point where the C+I line intersects the 45 degree line represents the level of output where income equals aggregate demand, which is the equilibrium level of output.

In the Most Basic Model of the Economy, Equilibrium Output