Question

Derive the two alternative conditions of expressing National Income Equilibrium. Show these equilibrium conditions on a single diagram.

Answer 1

AD = AS ......(i)

(C + I) = (C + S)

S = I ....(ii)

Detailed Answer:

The two Alternative Approaches of National Income determination are :

(i) AD = AS which is on E in the upper part of the diagram when AD curve intersects the 45⁰ line with equilibrium incorne OM. 

(ii) S = I which is at E'in the lower part of the diagram, when saving curve intersects the investment curve at E' with OM, as the equilibrium income level.