When the economy is in macro equilibrium,
A) the sum of savings plus investment must equal the sum of imports plus exports.
B) the sum of savings plus imports plus taxes must equal the sum of investment plus government purchases plus exports.
C) the sum of savings plus government purchases must equal exports minus imports.
D) the government's budget must be in balance.

Question

Quizplus · Accepted Answer

In macro equilibrium, the quantity demanded (spending) equals the quantity supplied (output/income), which can be expressed as the sum of savings, imports, and taxes equaling the sum of investment, government purchases, and exports. This is known as the national income identity. Therefore, choice B is the correct statement. Choices A and C are incorrect, as they do not take into account all the necessary variables in the national income identity. Choice D is also incorrect, as a balanced government budget is not necessarily a requirement for macro equilibrium.

When the Economy Is in Macro Equilibrium