In a simple model of the economy with demand- determined output, the equilibrium level of national income is at an income
A)to the left of the point where the AE curve intersects the 45- degree line.
B)to the right of the point where the AE curve intersects the 45- degree line.
C)where aggregate desired expenditure equals the value of total output.
D)where saving equals consumption.
E)where aggregate desired expenditure equals consumption.

Question

Quizplus · Accepted Answer

In a simple model of the economy with demand-determined output, the equilibrium level of national income occurs where aggregate desired expenditure (AE) equals the value of total output (Y), as this reflects a balance between spending and production. Option A is incorrect because an equilibrium level of national income cannot exist to the left of the point where the AE curve intersects the 45-degree line, as this would imply that desired spending is less than the level of output being produced. Option B is incorrect for the same reason, except that desired spending would be more than the level of output being produced. Option D is incorrect as it does not take into account other factors that affect equilibrium income, such as taxes and government spending. Option E is incorrect because it implies that consumption expenditure is equal to desired aggregate expenditure, which need not be the case.

In a Simple Model of the Economy with Demand- Determined