Using the Keynesian approach, if leakages from the spending stream are less than injections into the spending stream:
A) the economy is at its equilibrium level of output.
B) the economy is operating below its equilibrium level, and output will increase.
C) the economy is operating above its equilibrium level, and output will decrease.
D) the relationship between the actual and equilibrium levels of output cannot be established without more information.

Question

Quizplus · Accepted Answer

When leakages (such as savings, taxes, and imports) are less than injections (such as investment, government spending, and exports) in the Keynesian framework, it indicates that there is more spending than saving. This situation leads to an increase in aggregate demand, pushing the economy towards a higher level of output. Therefore, the economy is operating below its equilibrium level, and output will increase to reach a new equilibrium.

Using the Keynesian Approach, If Leakages from the Spending Stream