Question : Assertion: In the determination of equilibrium output, only ex-ante saving and ex-ante investment is considered.
Reason: Ex-ante saving and ex-ante investment are always equal to each other.
Option 1: Both Assertion and Reason are correct, and the Reason is the correct explanation of the Assertion.
Option 2: Both Assertion and Reason are correct, but the Reason is NOT the correct explanation of the Assertion.
Option 3: Assertion is correct, but the Reason is incorrect.
Option 4: Assertion is incorrect, but the reason is correct
Correct Answer: Assertion is correct, but the Reason is incorrect.
Solution : The correct answer is (C) Assertion is correct, but the Reason is incorrect.
Assertion states that in the determination of equilibrium output, only ex-ante saving and ex-ante investment are considered. This assertion is correct to a certain extent. In the determination of equilibrium output in macroeconomics, the focus is often on the equality of aggregate demand and aggregate supply. While ex-ante saving and ex-ante investment play a crucial role in this analysis, other factors such as consumption, government spending, net exports, and other components of aggregate demand are also taken into account.
Reason states that ex-ante saving and ex-ante investment are always equal to each other. This reason is incorrect. Ex-ante saving and ex-ante investment are not always equal to each other. In theory, they are assumed to be equal in the simplified Keynesian model, but in reality, they can diverge due to various factors such as changes in expectations, financial intermediation, and unplanned inventory accumulation.
Therefore, while Assertion is correct as it mentions the consideration of ex-ante saving and ex-ante investment in the determination of equilibrium output, Reason is incorrect as ex-ante saving and ex-ante investment are not always equal to each other.
