Need help here plz.
In a private closed economy, if aggregate expenditures equal GDP, then...
A = Consumption equals investment
B = Planned investment equals to saving.
C = Disposable income equals consumption minus saving
D = Consumption equals aggregate expenditures.
GDP = C+I+G = aggregate expenditures or total income. And total income can either be spent on consumption (C), saved (S), or used pay taxes (T). So GDP=C+S+T
SO C+I+G = C+S+T
Assuming a balanced budget, T=G.
And by definition C=C.
So, S=I, go with answer B.
To find the correct option, we need to understand the meaning of each term and determine their relationship to GDP and aggregate expenditures in a closed economy.
A. Consumption equals investment:
This statement suggests that the total amount spent on consumption goods and services is equal to the total amount invested in the economy. While consumption and investment are indeed components of GDP, they do not have to be equal to each other for aggregate expenditures to equal GDP. So, A is not the correct option.
B. Planned investment equals saving:
This statement implies that the amount planned to be invested in the economy is equal to the total saving in the economy. Saving represents the portion of income that is not spent on consumption. Although investment and saving are both components of aggregate expenditures, they do not have to be equal to each other for aggregate expenditures to equal GDP. So, B is not the correct option.
C. Disposable income equals consumption minus saving:
This statement states that disposable income, which refers to the income available for spending or saving after paying taxes, is equal to consumption minus saving. This relation is true, as disposable income consists of two parts: consumption and saving. So, C can be the correct option.
D. Consumption equals aggregate expenditures:
This statement indicates that consumption, the total spending on consumption goods and services, is equal to aggregate expenditures, which is the total spending in the economy on all goods and services (including consumption, investment, government spending, and net exports). In a closed economy, where there are no net exports, aggregate expenditures are equal to GDP. So, D can be the correct option.
To determine the correct option, let's go back to the initial statement: "In a private closed economy, if aggregate expenditures equal GDP." Based on this information, we can conclude that the correct option is D - Consumption equals aggregate expenditures.