Ig = 80 S = −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). In equilibrium, saving will be
A) $40.
B) $120.
C) $60.
D) $80.

Question

Quizplus · Accepted Answer

In equilibrium, investment (Ig) equals saving (S). Therefore, we can set Ig to be equal to S in the equation given:
Ig = S
80 = -80 + 0.4Y
Solving for Y:
0.4Y = 160
Y = 400
Thus, saving (S) is:
S = Ig = 80
Therefore, the correct answer is D.