In a closed economy, equilibrium real Gross Domestic Product (GDP)occurs where

Question

Quizplus · Accepted Answer

In a closed economy equilibrium real GDP occurs where the C + I + G line crosses the 45-degree line, which represents the level of output where planned expenditure equals real GDP. At this point, there is no unplanned inventory accumulation or depletion, and the economy is in equilibrium. Option B is incorrect because if planned expenditures exceed national income, there will be unplanned inventory depletion, and the economy will move away from equilibrium. Likewise, option C is incorrect because if saving exceeds planned investment, there will be unplanned inventory accumulation, and the economy will move away from equilibrium.

In a Closed Economy, Equilibrium Real Gross Domestic Product (GDP)occurs