The investment function intersects the saving schedule at an interest rate of 8 percent and a level of investment of $1.5 trillion a year. If the consumption curve intersects the 45-degree reference line at $3 trillion, then
A) the C + I curve will intersect the 45-degree reference line at $1.5 trillion.
B) the C + I curve will intersect the 45-degree line at $1.8 trillion.
C) the equilibrium level of real GDP is $3 trillion.
D) the equilibrium level of real GDP is $4.5 trillion.

Question

Quizplus · Accepted Answer

The equilibrium level of real GDP is found by adding the level of investment ($1.5 trillion) to the point where the consumption curve intersects the 45-degree line ($3 trillion), totaling $4.5 trillion. This is because the 45-degree line represents points where planned spending equals real GDP, and the equilibrium is where planned investment plus consumption equals GDP.

The Investment Function Intersects the Saving Schedule at an Interest