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Describe the S = I equilibrium condition of the goods market.

Describe the S = I equilibrium condition of the goods market.

Answers

Assuming an economy that does not involve in foreign trade, using the income approach National Income (Y) is expressed as Y = C + S + T.
Using the expenditure approach, it expressed as Y = C + G + I = AD
Where: Y = National Income C = Consumption S = Savings T = Tax
G = Government Expenditure and I = Investment

Equilibrium in the goods market requires that aggregate income (output) be equal to aggregate expenditure. Therefore, the goods market equilibrium can be expressed as
C + S + T = C + G + I
S + T = G + I
Assuming that G = T, then equilibrium is achieved when I = S.
Therefore, I = S is the equilibrium condition in the goods market, meaning that the economy should be at equilibrium at any point along S = I line.

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Kavungya answered the question on August 10, 2021 at 07:18

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