Target Exam

CUET

Subject

Economics

Chapter

Macro Economics: Determination of Income and Employment

Question:

At the short run equilibrium of income and employment, _____.

Options:

Ex-ante saving = Ex-ante consumption

Ex-ante investment Ex-ante consumption

Ex-ante saving = Ex-ante investment

Ex-ante saving = Ex-post investment

Correct Answer:

Ex-ante saving = Ex-ante investment

Explanation:

The correct answer is Option (3) → Ex-ante saving = Ex-ante investment

In the short-run equilibrium of income and employment in an economy, the total planned (ex-ante) savings by households are exactly equal to the total planned (ex-ante) investment by firms.

If ex-ante saving > ex-ante investment, aggregate demand falls short of aggregate supply, leading to a fall in income.
If ex-ante saving < ex-ante investment, aggregate demand exceeds supply, leading to a rise in income.

Thus, equilibrium is reached only when ex-ante saving equals ex-ante investment.