The equilibrium level of output in an economy is determined at the level where:
A) planned aggregate government spending is equal to the investments made by private ﬁrms.
B) planned aggregate exports is equal to the actual output of ﬁrms.
C) planned aggregate investment is equal to the actual output of ﬁrms.
D) planned aggregate expenditure is equal to the actual output of ﬁrms.

Question

Quizplus · Accepted Answer

The equilibrium level of output in an economy is determined at the point where planned aggregate expenditure equals the actual output of firms. This is because, at this point, the amount of goods and services produced by firms is exactly equal to the amount that is planned to be purchased by households, businesses, the government, and the foreign sector, leading to no unplanned changes in inventories and thus, no incentive for firms to change their level of output.

The Equilibrium Level of Output in an Economy Is Determined