Explain the national income determination in an economy using saving and investment approach. Use diagram.
CBSE OUTSIDE DELHI RE- PAPER SET 2 2018
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According to the saving-investment approach, equilibrium is attained at the point where planned saving is equal to planned investment.
According to the diagram, equilibrium is attained at Point E, where the saving curve SS intersects the investment curve I. Corresponding to this, the equilibrium level of output is OY.
In case of any deviation from the equilibrium level of output, a readjustment would start which would again bring back the economy to equilibrium.
If planned saving is more than planned investment, then there would be a rise in the level of inventory. To correct the situation, firms would reduce output and employment till investment and saving become equal to each other.
On the other hand, if planned saving is less than planned investment, then there would be a fall in the level of inventory. To correct the situation, firms would increase output and employment till investment and saving become equal to each other.
According to the diagram, equilibrium is attained at Point E, where the saving curve SS intersects the investment curve I. Corresponding to this, the equilibrium level of output is OY.
In case of any deviation from the equilibrium level of output, a readjustment would start which would again bring back the economy to equilibrium.
If planned saving is more than planned investment, then there would be a rise in the level of inventory. To correct the situation, firms would reduce output and employment till investment and saving become equal to each other.
On the other hand, if planned saving is less than planned investment, then there would be a fall in the level of inventory. To correct the situation, firms would increase output and employment till investment and saving become equal to each other.
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