Refer to the diagram, which applies to a private closed economy. If aggregate expenditures are C + Ig2, the amount of saving at income level J is
A) LK.
B) KN.
C) KD.
D) JD.

Question

Refer to the diagram, which applies to a private closed economy. If aggregate expenditures are C + Ig2, the amount of saving at income level J is
A) LK. 
B) KN. 
C) KD. 
D) JD.

Quizplus · Accepted Answer

At income level J, the total output produced (Y) is shown to be equal to aggregate expenditures (C + Ig2) plus savings (S). Therefore, we can write: Y = C + Ig2 + S.

Since the question asks for the amount of saving at income level J, we need to isolate S on one side of the equation. Rearranging the equation, we get: S = Y - C - Ig2.

Looking at the diagram, we can see that at point J, the level of output produced is KN. Therefore, we can substitute Y = KN in the equation for savings to get: S = KN - C - Ig2.

We are not given any information about the level of consumption or investment spending at point J, so we cannot determine the exact value of savings at this point. However, we can see that the distance KD represents consumption spending (C) and the distance JD represents investment spending (Ig2). Therefore, we know that savings at point J must be some value between KD and JD. The only choice that falls within this range is B, KN.

Refer to the Diagram, Which Applies to a Private Closed