Which one of the following is TRUE in an open economy with a government sector?
A) The equilibrium level of real GDP occurs when real net export spending equals zero.
B) The equilibrium level of real GDP occurs when planned real saving equals government spending.
C) The equilibrium level of real GDP occurs when total planned real expenditures equal real GDP.
D) The equilibrium level of real GDP occurs when planned real investment spending is zero.

Question

Quizplus · Accepted Answer

In an open economy with a government sector, the equilibrium level of real GDP occurs when total planned real expenditures equal real GDP. This is represented by the equation Y = C + I + G + NX, where NX is net exports. In an open economy, net exports are included in the total planned real expenditures, making option A incorrect. Option B is incorrect because government spending is just one component of total planned real expenditures. Option D is incorrect because investment spending is just one component of total planned real expenditures and does not need to be zero for equilibrium to occur.

Which One of the Following Is TRUE in an Open