Suppose an economy is in equilibrium when net taxes = $50 trillion, saving = $40 trillion, government purchases = $50 trillion, exports = $30 trillion, and imports = $10 trillion.What must planned investment spending be equal to?
A) $0
B) $10
C) $20
D) $50

Question

Suppose an economy is in equilibrium when net taxes = $50 trillion, saving = $40 trillion, government purchases = $50 trillion, exports = $30 trillion, and imports = $10 trillion.What must planned investment spending be equal to?  
A) $0 
B) $10 
C) $20 
D) $50

Quizplus · Accepted Answer

In macroeconomics, the equilibrium level of national income is given by the equation:

Y = C + I + G + NX
where
Y = National Income
C = Consumption
I = Investment
G = Government purchases
NX = Net exports
Saving = Income - Consumption and
Net taxes = Taxes - Transfer payments

In the equilibrium, saving = investment. Therefore,
S = Y - C
40 = Y - C
=> C = Y - 40

Also, net taxes = Taxes - Transfer payments
50 = Taxes - Transfer payments
=> Taxes - 50 = Transfer payments

Substituting these values in the equation above, we get:

Y = (Y - 40) + I + 50 + (30 - 10)
Simplifying this equation, we get:
Y = Y + 30 + I
I = $20 trillion

Therefore, planned investment spending must be equal to $20 trillion.

Suppose an Economy Is in Equilibrium When Net Taxes =