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Economics and the 2008 crisis: a Keynesian view
Economics and the 2008 crisis: a Keynesian view

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4 Modelling equilibrium

We have said that the economy will be in equilibrium when planned saving matches planned investment. So we need to use our diagram to explore this relationship. First, we need to show planned saving. Our diagram already shows planned consumption at each level of income, and of course planned saving is simply the difference between income and planned consumption. Having shown saving, we need to go on to add investment to our model to complete our analysis of equilibrium.