Question

To arrive at the value of equilibrium level of income, there must exist an equality between ex-ante ....... and ex-ante .......

• A. Aggregate Demand, Aggregate Supply
• B. Aggregate Demand, Savings
• C. Aggregate Demand, Investment
• D. Savings, Investment

Hint:

In Keynesian economics, the equilibrium level of income occurs when aggregate demand equals aggregate supply, which is also when savings equals investment.

Answer 1

The Correct Option is D

In order to determine the equilibrium level of income, the ex-ante aggregate demand must equal the ex-ante aggregate supply. Ex-ante aggregate demand is made up of aggregate demand, which consists of consumption and investment. At equilibrium, savings and investment must also be equal.