Using the consumption and saving data in problem 1 and assuming investment is \(16 billion, what are saving and planned investment at the \)380 billion level of domestic output? What are saving and actual investment at that level? What are saving and planned investments at the \(300 billion level of domestic output? What are the levels of saving and actual investment? In which direction and by what amount will unplanned investment change as the economy moves from the \)380 billion level of GDP to the equilibrium level of real GDP? From the \(300 billion level of real GDP to the equilibrium level of GDP?

Possible Levels of Employment, Millions	Real Domestic Output (GDP = DI), Billions	Consumption, Billions	Saving, Billions (DI – C)
40	\)240	\(244	-\)4
45	260	260	0
50	280	276	4
55	300	292	8
60	320	308	12
65	340	324	16
70	360	340	20
75	380	356	24
80	400	372	28

The unplanned investment is the amount of money the saving exceeds or falls short of the investment. It can be calculated as the difference between the two.

Unplanned investment =Saving – Planned Investment

If saving exceeds planned investment, the unplanned investment is positive, which means the economy needs more investment, and vice-versa.

In contrast, planned investment is the amount of money injected into the economy to reach equilibrium.

In this question, the planned investment is fixed at $16 billion.

Since the planned investment is constant at $16 billion, the aggregate expenditure is as follows:

AE = C + I

AE = C + 16

The saving, aggregate expenditure, and unplanned investment at varying levels of GDP are shown in the table below.

According to the formula S = DI – C, saving at $380 billion GDP is $24 billion.

At $380 billion GDP, the fixed investment of $16 billion and consumption of $356 billion makes the aggregate expenditure equal $372 billion.

Since planned investment falls short by $8 billion compared to saving (24 – 16 = 8). The unplanned investment is $8 billion.This implies that the economy needs more investment of $8 billion to increase the real GDP equivalent to the aggregate spending at that level.

Actual investment is collectively the planned and unplanned investment. In other words, actual investment is equal to savings.It is the amount that should be ideally invested in the economy to increase the real output equivalent to aggregate spending.

Actual Investment = Planned Investment + Unplanned Investment

Hence, the actual investment $380 level of output is $24 billion (= 16 + 8).

At $300 billion of GDP, the saving, as income not consumed (S = DI – C), is $8 billion. In contrast, planned investment is $16 billion producing an aggregate expenditure of $308 billion.

Since the planned investment exceeds the saving by $8 billion at a $300 level of output, the unplanned investment is $8 billion (8 – 16 = -8). It implies that the economy has $8 billion above the requirement, which should be deducted from the aggregate expenditure to match the real GDP. However, out of the $16 billion planned investment, only $8 billion investment equals the saving. Therefore, the actual investment is $8 billion (=16 – 8).

The unplanned investment at $380 billion of GDP falls short by $8 billion, while at equilibrium, the unplanned investment is zero saving equals to planned investment as reflected in the table.

Therefore, the unplanned investment starts diminishing from $380 billion of GDP and becomes zero at equilibrium.

At $300 billion of GDP, the unplanned investment is greater than saving by $8 billion. As the economy moves closer to equilibrium, the unplanned investment starts diminishing and becomes zero at equilibrium.

Thus, the unplanned investment decreases as the economy moves from $300 billion to equilibrium.