Suppose equilibrium GDP is $14,000. Which of the following choices of investment is consistent with that?

Real GDP

Consumption

Investment

Gov’t Purchases

Net Exports

Aggregate Expenditure

10,000

6000

3000

-1500

11,000

6800

3000

-1500

12,000

7600

3000

-1500

13,000

8400

3000

-1500

14,000

9200

3000

-1500

Question

Suppose equilibrium GDP is $14,000. Which of the following choices of investment is consistent with that?

Real GDP

Consumption

Investment

Gov’t Purchases

Net Exports

Aggregate Expenditure

10,000

6000

3000

-1500

11,000

6800

3000

-1500

12,000

7600

3000

-1500

13,000

8400

3000

-1500

14,000

9200

3000

-1500

BlackTom AI · Accepted Answer

We start by restating the given data in the table to understand the components of aggregate expenditure (AE).
- Real GDP (Y) = 14,000
- Consumption (C) = 9,200
- Investment (I) = ? (to be determined)
- Government Purchases (G) = 3,000
- Net Exports (NX) = -1,500

Next, recall the equation for aggregate expenditure in a closed-open economy (AE) when all is in equilibrium: AE = C + I + G + NX, and in equilibrium AE = Y. Since Y is 14,000, we set up the equation:
14,000 = 9,200 + I + 3,000 − 1,500
Simplify the known terms: 9,200 + 3,000 − 1,500 = 10,700. So we have:
14,000 = 10,700 + I
Solve for I: I = 14,000 − 10,700 = 3,300.

Now evaluate each answer option:
- Option A: Investment = 4,000
  AE would be 9,200 + 4,000 + 3,000 − 1,500 = 14,700, which does not equal Y (14,000). This makes it inconsistent with equilibrium.
- Option B: Investment = 3,300
  AE would be 9,200 + 3,300 + 3,000 − 1,500 = 14,000, which matches Y exactly. This is consistent with equilibrium.
- Option C: Investment = 3,100
  AE would be 9,200 + 3,100 + 3,000 − 1,500 = 13,800, which is below Y, so not in equilibrium.
- Option D: Investment = 1,500
  AE would be 9,200 + 1,500 + 3,000 − 1,500 = 12,200, far from Y, indicating disequilibrium.

In summary, only the investment level of 3,300 yields AE equal to aggregate output (14,000), satisfying the equilibrium condition. The other options fail to align AE with Y due to either overestimation or underestimation of total spending components, leading to AE ≠ Y.

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