question_answer

Explain the meaning of equilibrium level of income and output with the help of saving and investment curves. If planned expenditure is less than planned output in country 'R', then what changes will take place in the economy? Which value stands affected?

Answer:

Equilibrium level of income and employment is determined at a point where ex-ante savings is equal ex-ante investment. This is because, at the point of equilibrium, Aggregate Demand=Aggregate Supply                                                 or C+S=C+I, or i.e. S=Ii.e. Saving = Investments                                                  Determination of Equilibrium Level of Income and Output In the given diagram, E is the point of equilibrium, at which S=I.                                   If planned expenditure is less than planned output in country R, then the economy will be facing the problem of deficient demand. Due to this, prices will fall. With fall in price level, aggregate demand will rise up to the level at which planned expenditure equals planned output.                              The value that stands affected is the economy has over utilised its resources.