What will be the effect of an excess of planned investment over saving in a private closed economy with unemployed resources?
A) a decline in the rate of interest
B) an unintended accumulation of inventories by businesses
C) a rise in the real GDP
D) The federal budget will automatically move toward a deﬁcit.

Question

Quizplus · Accepted Answer

In a private closed economy with unemployed resources, an excess of planned investment over saving will result in an increase in aggregate demand, leading to a rise in real GDP. The increased demand for goods and services will prompt businesses to increase production, leading to an expansion in output and income levels. The increase in income levels will, in turn, create a multiplier effect, further boosting economic growth. Thus, option C is the correct answer. Option A is incorrect because an excess of planned investment over saving will lead to an increase in demand for credit, pushing up the interest rate, not reducing it. Option B is incorrect because an unintended accumulation of inventories will result from a shortfall in demand, not from excess investment. Option D is incorrect because the federal budget is not relevant in a private closed economy.

What Will Be the Effect of an Excess of Planned