Ig = 80
SA=−80 + 0.4Y
(Advanced analysis) The equations refer to a private closed economy, where Ig is gross investment, S
Is saving, and Y is gross domestic product (GDP). The equilibrium GDP will be
A) $160.
B) $400.
C) $360.
D) $480.

Question

Ig = 80 
SA=−80 + 0.4Y
(Advanced analysis) The equations refer to a private closed economy, where Ig is gross investment, S
Is saving, and Y is gross domestic product (GDP). The equilibrium GDP will be
A) $160.
B) $400.
C) $360.
D) $480.

Quizplus · Accepted Answer

In a private closed economy, equilibrium GDP occurs when planned investment (Ig) equals saving (S). Given Ig = 80 and S = -80 + 0.4Y, setting Ig equal to S gives 80 = -80 + 0.4Y. Solving for Y, we add 80 to both sides to get 160 = 0.4Y, and then divide both sides by 0.4 to find Y = 400. Therefore, the equilibrium GDP is $400.