What condition must be met in order for total spending to equal total output?
A) The sum of saving and government purchases must equal the sum of planned investment and net taxes.
B) The sum of saving and net taxes must equal the sum of planned investment and government purchases.
C) The sum of saving and planned investment must equal the sum of government purchases and net taxes.
D) Saving must equal net taxes.
E) The sum of saving and net taxes must equal planned investment minus government purchases.

Question

Quizplus · Accepted Answer

In the simple Keynesian model, total output (Y) is determined by total spending (C + I + G), where C is consumption, I is planned investment, and G is government purchases. Total spending is also equal to disposable income (Yd) minus net taxes (T), or (Yd - T). Therefore, for total spending to equal total output, the sum of saving (S) and net taxes must equal the sum of planned investment and government purchases, or (S + T = I + G). Choice B is the only option that correctly reflects this condition.

What Condition Must Be Met in Order for Total Spending