Why should planned savings & planned investments be equal at equilibrium level of income ? Explain with the help of diagram.
Dear student
Actual expenditure = Planned expenditure + Unplanned expenditure
And, similarly Actual investment = Planned investment + Unplanned investment
Now, in equilibrium aggregate demand must be equal to aggregate supply.
Suppose due to an earthquake in delhi, government expenditure increased by 500 crore. This unplanned expenditure should not influence the actual equilibrium in the economy because the AD and AS without earthquake were in equilibrium. Moreover, if we also include unplanned variables, then economy will never reach equilibrium because fluctuations in unplanned variables are always there .
This topic has been explained in detail in our study material. You can view the same following the below mentioned path. Class 12- Economics- Macroeconomics- Income determination- Aggregate supply and determination of equilibrium .
Regards
Actual expenditure = Planned expenditure + Unplanned expenditure
And, similarly Actual investment = Planned investment + Unplanned investment
Now, in equilibrium aggregate demand must be equal to aggregate supply.
Suppose due to an earthquake in delhi, government expenditure increased by 500 crore. This unplanned expenditure should not influence the actual equilibrium in the economy because the AD and AS without earthquake were in equilibrium. Moreover, if we also include unplanned variables, then economy will never reach equilibrium because fluctuations in unplanned variables are always there .
This topic has been explained in detail in our study material. You can view the same following the below mentioned path. Class 12- Economics- Macroeconomics- Income determination- Aggregate supply and determination of equilibrium .
Regards