In Keynesian macroeconomic equilibrium:
A) AE = I and C = S.
B) AE = S and C = I.
C) AE = Y and C = S.
D) AE = Y and S = I.

Question

Quizplus · Accepted Answer

In Keynesian macroeconomic equilibrium, aggregate expenditure (AE) is equal to national income (Y). At the same time, saving (S) is assumed to be equal to investment (I). Therefore, the correct choice is D, where AE=Y and S=I. Choice A (AE=I and C=S) is incorrect because it assumes that consumption (C) is equal to saving (S), which is not necessarily true in macroeconomic equilibrium. Choice B (AE=S and C=I) assumes that saving (S) equals AE, which ignores the impact of investment (I) on the equilibrium level of output. Choice C (AE=Y and C=S) assumes that consumption (C) equals saving (S) at the equilibrium level of output, which is not necessarily true.

In Keynesian Macroeconomic Equilibrium