Explain the equilibrating process in the simple Keynesian model.
Answer
In simple kenesian model the equilibrium level of employment and output is determined at a point where aggregate demand function intersects aggregate supply function.
Aggregate demand function AD= C+I
C= consumption
I= investment
Aggregate supply function AS= C+S
C= consumption
S= saving
Equilibrium condition is AD= AS
Ie. C+I=C+S
C is common in both sides of the equation
Therefore,
I=S
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