Explain how the economy achieves equilibrium level of income using Savings Investment (S-I) approach.
Answers
Saving-Investment Approach (S-l Approach): According to this approach, the equilibrium level of income is determined at a level, when planned saving (S) is equal to planned investment (I). In Fig 8.2, Investment curve (I) is parallel to the X-axis because of the autonomous character of investments.
Answer:C + I approach Aggregate demand, given by C + I, is the planned demand by the various sectors of the economy. Whether this planned demand is realized or not, depends on amount of goods and services (aggregate output or Y) produced in the economy. Thus, it is only when planned expenditure is equal to the aggregate output does the economy achieve equilibrium. i.e., AD = Y If AD > Y, inventory level with producers falls and they increase output. This happens till AD = Y Opposite happens if AD < Y.
Explanation: