Refer to the graph above for a private closed economy. In this economy, investment is:
A) $50 billion
B) $100 billion
C) $150 billion
D) $200 billion

Question

Refer to the graph above for a private closed economy. In this economy, investment is:
A) $50 billion 
B) $100 billion 
C) $150 billion 
D) $200 billion

Quizplus · Accepted Answer

In a closed economy, GDP is equal to the sum of consumption, investment, and government spending (Y = C + I + G). In the given graph, the equilibrium GDP (Y) is at $500 billion, where the blue line (Y=C+I) intersects the red line (Y=C+G). At this point, consumption is $300 billion (where the blue line intersects the vertical axis), and government spending is $100 billion (where the red line intersects the vertical axis). Therefore, investment can be calculated as $100 billion (Y=C+I+G => $500 billion = $300 billion + I + $100 billion => I = $100 billion).

Refer to the Graph Above for a Private Closed Economy