How is saving and investment approach derived from the Aggregate Demand and supply
approach of income determination? Explain and use diagram
Answers
Answer:
It is derived from Aggregate Demand and supply approach in the following way: Aggregate Demand in a two sector economy is defined as the sum of consumption expenditure(c) and investment expenditure (I) i.e. AD = C + I, where as Aggregate Supply is defined as the sum of consumption (c) and savings (s) i.e. AS = C + S.
Answer:
The equilibrium level of financial gain or output is that level at that the planned savings and planned investments square measure equal. it's derived from mixture Demand and provide approach within the following way: mixture Demand in a very 2 sector economy is outlined because the add of consumption expenditure(c) and investment expenditure (I) i.e. AD = C + I, wherever as mixture provide is outlined because the add of consumption (c) and savings (s) i.e. AS = C + S.
Mathematically, AD = AS
C + l = C+S
Hence, l = S
or S = l
E is that the equilibrium purpose wherever mixture Demand equals aggregate supply. Equality in AS and AD gives the equality in S and l. once we stretch the road EP vertically downward, it meets at purpose E’ with S and l. it's the equilibrium purpose of saving and investment approach the amount of income at that the economy is in equilibrium.
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