Question

Which one of the following is the determining factor of equilibrium income in Keynesian viewpoint?

• A. Aggregate demand
• B. Aggregate supply
• C. Both (A) and (B)
• D. None of these

Hint:

In Keynesian economics, equilibrium is always found where the two main forces meet: Aggregate Demand = Aggregate Supply.

Answer 1

The Correct Option is C

According to Keynesian theory, the equilibrium level of income in an economy is determined at the point where Aggregate Demand (AD) equals Aggregate Supply (AS). This is the point of effective demand. It is the intersection of the AD and AS schedules that determines the level of income, output, and employment at which the economy will settle. Neither AD nor AS alone can determine the equilibrium.