To determine whether the statement "If [tex]\( C + I_g \)[/tex] exceeds GDP in a private closed economy, GDP will decline" is true or false, let's carefully analyze the components and the economic principles involved.
1. Understanding the Components:
- [tex]\( C \)[/tex]: Consumption in the economy.
- [tex]\( I_g \)[/tex]: Gross investment in the economy.
- GDP: Gross Domestic Product, the total value of all goods and services produced in the economy.
2. Aggregate Demand and Aggregate Supply:
- In a private closed economy, the aggregate demand is primarily composed of consumption (C) and gross investment ([tex]\(I_g\)[/tex]).
- Aggregate demand ([tex]\(AD\)[/tex]) can be expressed as [tex]\(AD = C + I_g\)[/tex].
3. Economy Equilibrium:
- For the economy to be in equilibrium, aggregate demand must equal GDP, which is the total output.
- [tex]\( AD = GDP \)[/tex]
4. Scenario Analysis:
- The statement posits that [tex]\(C + I_g\)[/tex], which is the aggregate demand, exceeds GDP.
- If [tex]\(C + I_g > GDP\)[/tex], it means the total spending in the economy is greater than the total output.
5. Economic Implications:
- When aggregate demand exceeds GDP, it indicates that the demand for goods and services is higher than what the economy is currently producing.
- This excess demand typically leads to an increase in production to meet the higher demand levels.
- Businesses respond by producing more goods and services, leading to an increase in GDP rather than a decline.
6. Conclusion:
- Therefore, if [tex]\(C + I_g\)[/tex] exceeds GDP in a private closed economy, the expected economic reaction would be an increase in GDP to match the higher aggregate demand.
- The statement "GDP will decline" is incorrect in this context.
So, the correct answer to the question is:
False
