Which one of the following is true in an open economy with a government sector?
A) The equilibrium level of real GDP occurs when real net export spending equals zero.
B) The equilibrium level of real GDP occurs when planned real saving equals government spending.
C) The equilibrium level of real GDP occurs when total planned real expenditures equal real GDP.
D) The equilibrium level of real GDP occurs when planned real investment spending is zero.

Question

Quizplus · Accepted Answer

In an open economy with a government sector, the equilibrium level of real GDP occurs when total planned real expenditures equal real GDP, which includes consumption, investment, government spending, and net exports. This is because in an open economy, net exports depend on domestic output and foreign demand, whereas in a closed economy, net exports would simply depend on domestic output. So, the equation for equilibrium GDP in an open economy is: GDP = C + I + G + NX, where NX is net exports (exports minus imports). However, net exports may not necessarily equal zero at equilibrium, as it depends on the level of foreign demand and domestic output.

Which One of the Following Is True in an Open