Refer to the diagram for a private closed economy. In this economy, investment
A) decreases as GDP increases.
B) increases as GDP increases.
C) is $40 billion at all levels of GDP.
D) is $60 billion at all levels of GDP.

Question

Refer to the diagram for a private closed economy. In this economy, investment
A) decreases as GDP increases. 
B) increases as GDP increases. 
C) is $40 billion at all levels of GDP. 
D) is $60 billion at all levels of GDP.

Quizplus · Accepted Answer

Investment is shown as a fixed amount of $40 billion at all levels of GDP in the diagram, so the correct answer is C. Neither A nor B is correct as they suggest that investment either decreases or increases as GDP increases, which is not the case in the private closed economy shown. D is also not correct as the investment level does not change regardless of the level of GDP.

Refer to the Diagram for a Private Closed Economy