What is the equilibrium condition in the loanable funds market? A) S + G = I^P - T B) S = I^P + T - G C) S + I^P = G - T D) S - T = I^P + G E) S = I^P + G - T

Question

Quizplus · Accepted Answer

The equilibrium condition in the loanable funds market is represented by the equation: S = I + NX. Here, S represents savings, I represents investment, and NX represents net exports. However, in a closed economy (where NX = 0), the equilibrium condition simplifies to S = I. Adding in government spending (G) and taxes (T), we get: S = I + (G - T). Rearranging this equation gives the answer: S = I + (G - T), which is represented by choice letter E.

What Is the Equilibrium Condition in the Loanable Funds Market