This document discusses the concept of equilibrium level of national income. It provides three main methods to measure national income - the product method, income method, and expenditure method. It explains that equilibrium occurs when aggregate demand (AD) equals aggregate supply (AS). The document uses a table to illustrate different scenarios when AD is greater than, less than, or equal to AS, and whether the economy is in a state of expansion, contraction, or equilibrium. It also gives examples of how governments may intervene to maintain equilibrium, such as by controlling consumption or subsidizing prices. Finally, it notes that while the Keynesian model shows savings equal to investment at equilibrium, this perfect equality does not always hold in reality due to differences between real and

1. EQUILIBRIUM LEVEL OF
NATIONAL INCOME

2. “Value of commodities and
services produced in an
economy during a given
period, counted without
duplication”

3. How to
measure
The Product Method “This method seeks to
“add up all expenditures
“involves adding up the value
made for final goods
measure national
of allservices at current
and the final goods and
The income Method market prices by of
income atproduced in the
services thefirms and
phase
households,
distribution.”
government during a
country during the year.”
The expenditure Method year”

4. ‘How much should be the
national TO THE DEMAND OF THE
PRODUCTION
income?
= PEOPLE ’
So that goods, Do not remain unsold and
Do not face shortage

5. DEMAND
CONSUMPTION
DEMAND + DEMAND FOR
INVESTMENT GOODS
AGGREGATE DEMAND
(AD)

6. PRODUCTION
CONSUMER
GOODS + CAPITAL
GOODS
AGGREGATE SUPPLY
(AS)

7. AGGREGATE DEMAND
=
(AD)
AGGREGATE SUPPLY
(AS)

8. Equality between AD and AS
INCOME AD CONSUMPTION AS SAVINGS INCOME AD-AS TREND
400 460 380 400 20 80 60 EXPANSION
450 490 410 450 40 80 20 EXPANSION
500 520 440 500 60 80 20 EXPEANSION
550 550 470 550 80 80 0 EQUILIBRIUM
600 580 500 600 100 80 -20 CONTRACT
650 610 530 650 120 80 -40 CONTRACT

9. Y = AS=C+S
AS=AD
I
N (EQUILIBRIUM)
C
O
M E
E
45
0 CONSUMPTION
Since AD>AS,
Producer will keep on producing more and
expansionary trend take place.

10. Instance where government took steps to
maintain equilibrium level of National Income
Fall in Domestic demand by fall
in house price in 1989 in U.K
Fall in AD
Government took Consumers
steps to control were asked
to cut back
their
expenditure

11. SUPPLY CHANGE
Rise in world oil Internal crude oil Increased the
prizes over 30 price moved variable cost of oil
years. sharply. firms.
Subsidized pricing Firms raised the
Leading to
done by the price of finished
Disequilibrium
government product.

12. S=I s
Income
(EQUILIBRIUM)
E
I I
consumption
0 s
S=I is a equilibrium point,
Before this point investment > savings,expension
will take place.
After this point investment < savings contraction
will take place.

13. Is savings equal to investment always
Y=C+S
and
Y=C+I
KEYNES
From here, It is evident that I should be = S

14. BUT IT IS NOT POSSIBLE IN REAL LIFE.
THE EQUALITY IS SHOWN ON THE BASIS OF
REAL INVESTMENT AND REAL SAVINGS.
(C+I) (I-S)
INCOME CONSUMPTION AS SAVINGS INCOME TREND
AD AD-AS
400 460 380 400 20 80 60 EXPANSION
450 490 410 450 40 80 20 EXPANSION
500 520 440 500 60 80 20 EXPEANSION
550 550 470 550 80 80 0 EQUILIBRIUM
600 580 500 600 100 80 -20 CONTRACT
650 610 530 650 120 80 -40 CONTRACT

15. Thank you