Question

The goods market of an open economy is in equilibrium when domestic output or production​ is:

A. equal to the demand for domestic goods.
B. equal to the foreign demand.
C. equal to the domestic demand.
D. equal to net exports.

The equilibrium level of output ▼ must be could be can not be the same as the level of output at which trade is balanced.

Answer 1

Answer: The correct answer is "A. equal to the demand for domestic goods.".

Explanation: In the market for goods and services, the equilibrium will take place when production or income is equal to aggregate demand.

We know that aggregate demand is equal to Consumption + Investment + Government spending + Net exports.

Therefore the goods market will be in balance when domestic production is equal to the TOTAL demand for domestic goods.