If output determines income and income determines spending
A) an equilibrium is impossible in the economy.
B) intended spending and actual spending are always equal.
C) the C + I line is the same as the 45-degree line.
D) the levels of both national output and prices rise indefinitely.
E) the level of GDP changes unless intended spending equals GDP.

Question

Quizplus · Accepted Answer

The statement is a version of the basic Keynesian macroeconomic identity: Y=C+I+G+NX. It states that if output (Y) is determined, then income (Y) will be equal to spending (C+I+G+NX). Therefore, if intended spending (C+I+G+NX) is less than output (Y), income and output will fall until they equalize with intended spending. Conversely, if intended spending is greater than output, income and output will rise until they equalize with intended spending. Thus, the level of GDP changes unless intended spending equals GDP.

If Output Determines Income and Income Determines Spending