Since As C S and AD C I the equilibrium will be established where C S C I or where ........

Since As= C+S and AD=C+I the equilibrium will be established where C+S= C+I, or where:

S=I

S>I

S<I

All the above

- In a simple economy, equilibrium is established where aggregate supply (AS) equals aggregate demand (AD).

- AS is expressed as C + S, where C is consumption and S is savings.

- AD is expressed as C + I, where C is consumption and I is investment.

- For equilibrium:

- C + S = C + I

- Therefore, S = I. This balance ensures that all savings are invested.

- Option 1: S = I

- Correct. This is the condition for equilibrium in a closed economy without government or foreign trade.

- Option 2: S > I

- Incorrect. This implies excess savings, leading to reduced aggregate demand.

- Option 3: S < I

- Incorrect. This indicates excess investment, potentially causing inflation.

- Option 4: All the above

- Incorrect. Only S = I is correct for equilibrium.

Option 1 is the correct answer.

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