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Answer :
Final answer:
The level of investment spending in the closed economy with given GDP, consumption, and government spending, is $2 trillion.
Explanation:
In a closed economy where GDP equals the sum of consumption, investment, and government spending, the formula for GDP is:
GDP = Consumption + Investment + Government spending
Given the values:
GDP = $20 trillion
Consumption = $16 trillion
Government spending = $2 trillion
Taxation does not directly enter the equation for GDP calculation but affects the disposable income and savings which influence investments.
Therefore, we can deduce the Investment (I) by re-arranging the GDP formula:
GDP - Consumption - Government spending = Investment
Investment = $20 trillion - $16 trillion - $2 trillion = $2 trillion
That means the level of investment spending is $2 trillion, which corresponds to option A.
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