10 Questions
In the Keynesian model, what action do firms take to correct the situation when inventories are building up?
Cut back on production
What is the condition for equilibrium in terms of income and aggregate demand?
$Y = AD$
At what income level does the economy reach equilibrium in the scenario described?
400
What happens to consumption and saving levels at equilibrium compared to the initial income level?
Consumption decreases, saving increases
Why did firms cut back on production when the economy was not at equilibrium initially?
Due to insufficient aggregate demand
What led to a 'leakage' into saving in the economy initially?
Savings exceeding investment
Why did saving decrease at equilibrium compared to the initial level?
Because of a decrease in income
What happens to aggregate demand and output at equilibrium compared to the initial levels?
Both decrease
What restores the balance between saving and investing at equilibrium?
$S = I$
What caused leakages and injections to become equal again at equilibrium?
Changes in aggregate income and consumption
Test your knowledge on closed economies, national saving, and financial market identities. Explore the relationship between total income, consumption, investment, and government purchases.
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