Question

3) With the aid of a properly-labeled diagram, explain what would happen automatically if total planned spending (C+I) in Economia (a closed economy with no government) intersected the 45° line at a national income of $890 billion, but the economy temporarily found itself with national income of $900 billion. (20 marks)

Answer 1

belutin 39 2 Income Tohlly planned spending a C+I ay (E? Samilibinum) Ispending - CHI i H 6450 ... Da fqo qoo - Poncamely f cument anome is & nou billion then . • Mone is greater than Aggregate spending graphically FH > GH) . It will dead to increase in inventory so the next firm employ less people leading to the 19 2528 . Decrease in Income decreases .consumption spending simultaneously. The process will continue till the point E is reached where total spending is equal to income.