In the aggregate expenditures model, equilibrium GDP in a private closed economy is indicated by:
A)the equality of saving and planned investment.
B)the intersection of aggregate expenditures and the 45-degree line.
C)the absence of unplanned changes in inventories.
D)all of the above.

Question

Quizplus · Accepted Answer

In the aggregate expenditures model, equilibrium GDP in a private closed economy is the level of output where aggregate expenditures (AE) equals output (Y) which is also where saving (S) equals planned investment (I) and there are no unplanned changes in inventories. This can be represented graphically by the intersection of the AE curve and the 45-degree line (which represents the level of output where AE = Y).

Therefore, all of the options - A) the equality of saving and planned investment, B) the intersection of aggregate expenditures and the 45-degree line, and C) the absence of unplanned changes in inventories - indicate equilibrium GDP in a private closed economy. Hence the correct answer is D) all of the above.

In the Aggregate Expenditures Model, Equilibrium GDP in a Private