Question

Which of the following statements is correct?

• A. C = f(Y)
• B. C + S = C + I
• C. Equilibrium level of income (Y) in the economy = equilibrium level of output (O) = equilibrium level of employment
• D. All of these

Hint:

In equilibrium, total spending equals total investment, and income, output, and employment are all at their equilibrium levels in the economy.

Answer 1

The Correct Option is D

Step 1: Analyzing the Options:
- Option (A) C = f(Y): This equation represents the consumption function, where consumption (C) is a function of income (Y). According to Keynesian theory, as income increases, consumption increases, but not necessarily by the same proportion. This is a valid statement.
- Option (B) C + S = C + I: This equation is a representation of the equilibrium condition in the economy, where consumption (C) and saving (S) must balance with investment (I). It shows that total spending (C + S) equals total investment in the economy. This is also a valid statement.
- Option (C) Equilibrium level of income (Y) in the economy = equilibrium level of output (O) = equilibrium level of employment: In equilibrium, the level of income, output, and employment are all equal, meaning the economy is operating at its full potential, and there is no involuntary unemployment. This is a valid statement.
Step 2: Conclusion and Answer:
Since all three statements are correct, the correct answer is (D) All of these.