In the simple Keynesian model, the economy will be in equilibrium when
A) savings is greater than investment.
B) savings is greater than income.
C) savings is equal to investment.
D) investment is equal to income.

Question

Quizplus · Accepted Answer

In the simple Keynesian model, the economy will be in equilibrium when savings is equal to investment. This is because in the short run, total output (income) is fixed and determined by the level of aggregate demand, which is the sum of consumption and investment. Savings is the amount of income that is not consumed, and is therefore available for investment. In equilibrium, savings must equal investment, as this ensures that all available savings are being invested and contributing to overall spending in the economy.

In the Simple Keynesian Model, the Economy Will Be in Equilibrium