Question

In the Keynesian economic analysis, determination of equilibrium income in the short-run is usually expressed as __________.

(Choose the correct alternative to fill in the blank)

(i) Ex-ante Aggregate Demand = Ex-ante Aggregate Supply

(ii) Consumption (C) + Investment (I) = Savings

(iii) Consumption (C) + Investment (I) = National Income

(iv) Ex-ante Savings = Ex-ante Investments

• A. (i) and (ii)
• B. (i) and (iv)
• C. (i), (ii) and (iv)
• D. (i), (iii) and (iv)

Hint:

In the Keynesian model equilibrium is where ex-ante AD equals ex-ante AS. This is the same as C + I = Y, and also the same as ex-ante S = ex-ante I.

Answer 1

The Correct Option is D

Step 1: Understand the question:
We must pick the statements that describe how short-run equilibrium income is found in the Keynesian analysis.

Step 2: Recall the conditions:
Equilibrium means ex-ante aggregate demand equals ex-ante aggregate supply.
Aggregate demand is C + I and aggregate supply is national income Y, so C + I = Y.
Since Y = C + S, we can cancel C on both sides and get S = I (ex-ante).

Step 3: Check statement (i):
Ex-ante AD = ex-ante AS is the basic equilibrium condition. So (i) is correct.

Step 4: Check statement (ii):
C + I = S is not the equilibrium rule. Putting S = Y - C in it gives Y = 2C + I, which is not C + I = Y. So (ii) is wrong.

Step 5: Check statement (iii):
C + I = national income is the same condition written in terms of income. So (iii) is correct.

Step 6: Check statement (iv):
Ex-ante saving equal to ex-ante investment is the saving and investment approach to equilibrium. So (iv) is correct.

Step 7: Pick the option:
Statements (i), (iii) and (iv) are correct. This is option (D). Options (A), (B) and (C) either drop a correct statement or include (ii).

Final Answer:
Equilibrium income is expressed by statements (i), (iii) and (iv). The correct option is (D).