NOTE all these Questions will have similar answer

Q .How will equilibrium level of income be reached in following cases

I>S
Planned Investment > planned Saving
Ex Ante Investment>Ex Ante Saving
Planned Investment > actual Investment
Ex Ante Investment>Ex Post Investment
I<S
Planned Investment < planned Saving
Ex Ante Investment<Ex Ante Saving
Planned Investment < actual Investment
Ex Ante Investment<Ex Post Investment

Planned savings are less than planned Planned savings are greater than planned
investment (ii) investment (I)

What changes will take place to bring an economy in equilibrium if

(i) Planned savings are greater than planned investment and

(ii) Planned savings are less than planned investment

(i) If planned savings are greater than planned investment

The situation when planned savings are greater than planned investment implies that total
consumption expenditure is less than what is required to purchase the available supply of goods and
services.

Also, high saving implies low consumption, which means that the required output is less than the
planned output. A result, a portion of the supply remains unsold, which leads to unplanned
inventory accumulation. In response to this situation, for clearing the unsold stock, the producers
plan a cut in the production in the next period. Thereby, they reduce the employment of labourers.
The reduced employment leads to fall in the aggregate income in the economy. Consequently, the
aggregate saving falls. The saving will continue to fall, until, it becomes equal to the investment.
In the figure, S and I represent the Saving and Investment curves respectively. Suppose, the
equilibrium is at Y´ level of income where, saving (TY´) exceeds investment (KY´). Consequently,
there exists unplanned inventory accumulation of unsold stock equal to TK (i.e. TY´ − KY´). The
producers respond to this situation by reducing the production. Thereby, they reduce the
employment. Due to reduced employment, the income of the factors of production (of the people)
falls. Subsequently, the saving will fall due to reduced income. The saving will continue to fall, until,
saving equates investment at point E. The economy achieves equilibrium at point E, with saving
equal to investment and OY level of national income (or output).

(ii) If planned savings are less than planned investment

The situation when saving (S) are less than planned investment, implies that total consumption
expenditure is greater than what is required to purchase the available supply of goods and services.
Low saving implies high consumption, which means that the required output is more than the
planned output. Thus, there will be unplanned depletion of inventory.

In response to this, to increase the stock of output, the producers plan to expand production in the
next period. Thereby, they increase the employment of factors of production. The increased
employment leads to rise in aggregate income in the economy. Consequently, aggregate saving also
rises. The saving will continue to rise, until, it becomes equal to the investment.

In the figure, S and I represent the saving and investment curves respectively. Suppose that the
equilibrium is at Y´ level of income where, investment (TY´) exceeds saving (KY´). Consequently,
there exists unplanned depletion of inventory or unplanned disinvestment by TK (i.e. TY´ − KY´). Tthe
producers respond to this by increasing the production by hiring more factors of production.
Consequently, the employment increases and the income of the factors (of the people) rise.
Subsequently, the saving rises due to increased income. The saving will continue to rise, until, it
equates investment at point E. The economy achieves equilibrium at point E, with saving equal to
investment and OY level of national income (or output) value of money multiplier. Hence, the money
creation by the commercial banks also increases.
CHECKED BY : MADHURI YADAV

DATE:8.07.2020

1. Good topic

2.Nice Attempt

3.Visually Attractive

4.Well researched