Practicing Success

Target Exam

CUET

Subject

Economics

Chapter

Macro Economics: Determination of Income and Employment

Question:

Read the following statements - Assertion (A) and Reason (R)carefully and choose the correct alternative given below:
Assertion (A) :The economy attains equilibrium at a point where the saving curve intersects the investment curve .
Reason (R ):At the level of full employment equilibrium , actual level of Aggregate Demand must be equal to the required level of Aggregate Demand

Options:

Both Assertion (A) and Reason (R ) are true and Reason(R) is the correct explanation of Assertion (A) 

 Both Assertion (A) and Reason (R ) are true and Reason(R) is not the correct explanation of Assertion (A)

 Assertion (A) is true but Reason (R ) is false

Assertion (A) is false but Reason (R ) is true

Correct Answer:

 Both Assertion (A) and Reason (R ) are true and Reason(R) is not the correct explanation of Assertion (A)

Explanation:

According to Keynesian theory, equilibrium is determined in terms of Aggregate demand and Aggregate supply. Income and employment are in equilibrium at that level at which AD=AS. 

Equilibrium can be determined through S and I approach. 

Since, AD = C + I and AS = C + S

We know equilibrium is when AD = AS, so C + I = C + S

Therefore, I = S