Question

explain the determination of equilibrium level of income using saving investment approach use digram​

Answer 1

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 Investment curve (I) is parallel to the X-axis because of the autonomous character of investments. ... At point 'E', ex-ante saving is equal to ex-ante investment.

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Answer 2

According to this approach of equilibrium, the equilibrium is reached only when Investment(I) equals Savings(S) because at this level there is no tendency for income and output to change.

In the diagram the equilibrium is at E1 where savings intersects investment curve At this point, I=S.

When S is more than I , then the planned inventory would fall below the desired level. To bring back the Inventory at the desired level, the producers expand the output More output means more income. Rise in output means rise in I and rise in income means rise in S. Both continue to rise till they reach E1, S=I.

When S is less than I, then the planned inventory rises above the desired level. To clear the unwanted increase in inventory, firms plan to reduce the output till S becomes equal to I.

So, equilibrium takes place only at point E1, when S=I.