In the simple Keynesian cross model with no government or foreign sectors, at the equilibrium level of output
A) saving is equal to zero.
B) saving is less than investment.
C) saving is equal to investment.
D) saving is greater than investment.

Question

Quizplus · Accepted Answer

In the simple Keynesian cross model with no government or foreign sectors, at the equilibrium level of output, saving is always equal to investment. This is because investment is the only leakage from the circular flow of income in the model (the other two being taxes and imports, which are not included). Since saving is defined as income minus consumption, and in equilibrium income equals output, which equals consumption plus investment, it follows that saving must equal investment at the equilibrium level of output.

In the Simple Keynesian Cross Model with No Government or Foreign