Question : According to Keynesian Theory, the equilibrium level of income is determined at a level when:
Option 1: Ex-ante Savings = Ex-ante Investments
Option 2: Ex-post Saving = Ex-post Investments
Option 3: Both a and b
Option 4: None
Correct Answer:
Ex-ante Savings = Ex-ante Investments
Solution : The correct answer is (a) Ex-ante Savings = Ex-ante Investments
In the Keynesian framework, the equilibrium level of income occurs when planned savings (ex-ante savings) in the economy are equal to planned investments (ex-ante investments). This means that the total amount individuals and businesses plan to save is equal to the total amount they plan to invest.
Ex-post savings and investments refer to the actual savings and investments that occur after economic activity has taken place. These may differ from the planned levels due to various factors such as changes in consumer behavior, unexpected events, or changes in business expectations.
