Consider a closed economy without a government and without international trade. What will be true when this economy is in equilibrium?
A) Total planned real investment spending will exceed total planned real expenditures.
B) Planned real investment spending will exceed real planned saving.
C) Planned real consumption spending equals real GDP.
D) Planned real consumption spending plus planned real investment spending equals real GDP.

Question

Quizplus · Accepted Answer

In a closed economy without a government and international trade, the only components of aggregate expenditure are consumption (C) and investment (I). In equilibrium, the total planned real consumption spending and the total planned real investment spending must equal the real GDP, as there is no leakage or injection in the economy. Therefore, choice D is correct. The other choices are not true, as total planned real investment spending cannot exceed total planned real expenditures (choice A) and planned real investment spending cannot be greater than planned real saving (choice B) as there are no leakages. Finally, choice C makes no sense in such an economy as the notion of planned real consumption spending is not well defined.

Consider a Closed Economy Without a Government and Without International