In a private closed economy, when aggregate expenditures equal GDP,
A) consumption equals investment.
B) consumption equals aggregate expenditures.
C) planned investment equals saving.
D) disposable income equals consumption minus saving.

Question

Quizplus · Accepted Answer

In a private closed economy, when aggregate expenditures equal GDP, it implies that all income not used for consumption is saved, and this saving is exactly equal to the amount businesses planned to invest. This is because, in such an economy, the only components of aggregate expenditures are consumption and investment. Therefore, when aggregate expenditures equal GDP, it means that the total amount saved by households is equal to the total amount businesses planned to invest, making choice C correct.

In a Private Closed Economy, When Aggregate Expenditures Equal GDP