For the economy to be in equilibrium,

Question

Quizplus · Accepted Answer

Equilibrium in the economy requires that total output equals total spending. Total spending is made up of four parts: consumption expenditure, investment spending, government spending, and net exports. Saving is the portion of disposable income that is not spent on consumption, so it contributes to investment spending. Tax revenue is a form of government income, which is spent on government expenditure. Therefore, the sum of government expenditure and investment must equal the sum of saving and tax revenue for the economy to be in equilibrium.

For the Economy to Be in Equilibrium