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CA Foundation · Business Economics · Determination of National Income

In the Keynesian two-sector model, the economy is in equilibrium when:

Equilibrium occurs when planned saving equals planned investment. Aggregate demand is C + I and aggregate supply is C + S, so they are equal only when S = I. Saving is a leakage and investment an injection, so income stays stable when they match.

  1. APlanned saving equals planned investmentCorrect
  2. BConsumption equals saving
  3. CActual investment is zero
  4. DAggregate supply is always greater than aggregate demand

Explanation

In a two-sector economy of households and firms, equilibrium requires aggregate demand (C + I) to equal aggregate supply (C + S). Cancelling C gives planned S = planned I. Option B is wrong because consumption and saving need not be equal at equilibrium.

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