If GDP is at an equilibrium level in a closed economy,

Question

Quizplus · Accepted Answer

If GDP is at an equilibrium level in a closed economy, it means that aggregate demand is equal to aggregate supply. Therefore, the total expenditure in the economy (C + I + G) is equal to the output or national income (GDP). This is known as the expenditure-output equilibrium. Hence, choice A is the correct answer.

Choice B is incorrect because if savings are less than planned investment, it would imply that aggregate demand is greater than aggregate supply, which would lead to an increase in output and prices, and a shift away from the equilibrium level of GDP.

Choice C is incorrect because if unplanned inventory accumulation equals planned inventory accumulation, it would imply that there is no excess supply or demand in the market, which may or may not be consistent with the equilibrium level of GDP.

Choice D is incorrect because the equation C + T - G = GDP or national income is valid only in an open economy where net exports (NX) are included, and is not relevant to a closed economy where there are no international transactions.

If GDP Is at an Equilibrium Level in a Closed