Which equation is NOT true at equilibrium in the simple Keynesian model?
A) I = S
B) AE Y
C) Y = C + S
D) AE = C + I

Question

Which equation is NOT true at equilibrium in the simple Keynesian model?
A) I = S
B) AE > Y
C) Y = C + S
D) AE = C + I

Quizplus · Accepted Answer

At equilibrium in the simple Keynesian model, aggregate expenditure (AE) must be equal to output (Y). This is because at equilibrium, there is no unplanned inventory accumulation or depletion. Therefore, the correct equation at equilibrium is AE = Y. Option A and C are both true at equilibrium as saving (S) must equal investment (I) and output (Y) must equal consumption (C) plus saving (S). Option D can also be true at equilibrium as long as the value of AE is equal to C + I, which is equal to output (Y). However, option B is not true at equilibrium as AE cannot be greater than output (Y) since this would mean there is unplanned inventory depletion, suggesting that firms should produce more to meet the demand.

Which Equation Is NOT True at Equilibrium in the Simple