In the basic closed-economy ISLM model,the goods market equilibrium condition is
A)output = consumption + investment + government spending.
B)output = consumption + investment + government spending - tax.
C)output = consumption + investment + government spending + net export.
D)output = potential output.

Question

Quizplus · Accepted Answer

The goods market equilibrium condition in the basic closed-economy ISLM model is given by Y = C + I + G where Y is the level of output, C is consumption, I is investment, and G is government spending. This equation represents the equality of aggregate demand (the sum of consumption, investment, and government spending) and aggregate supply (output), which must hold in order for the goods market to be in equilibrium. Therefore, the correct answer is (A) output = consumption + investment + government spending.

In the Basic Closed-Economy ISLM Model,the Goods Market Equilibrium Condition