Refer to the Diagram for a Private Closed Economy

question 34

Multiple Choice

Refer to the diagram for a private closed economy. At the $200 level of GDP,

• A) consumption is $200 and planned investment is $50, so aggregate expenditures are $250.
• B) consumption is $200 and planned investment is $100, so aggregate expenditures are $300.
• C) consumption is $250 and actual investment is $50, so aggregate expenditures are $300.
• D) aggregate expenditures fall short of GDP, with the result that GDP will decline.

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Definitions:

Trade

The exchange of goods, services, or both between two or more parties, either within a country or internationally.

Production Possibilities Curve

A graph that shows the various combinations of outputs that a society can produce if all its resources are being used efficiently.

Trading Possibilities Curve

A graph that shows the maximum amount of goods a country can produce, given its resources, and hence the possible extents of trade with other countries.

International Exchange Ratio

The rate at which the goods and services of one country can be traded for those of another.