The Financial Sector

Question 1

when does equilibrium in the financial sector occur

Answer 1

when total planned spending (C+I) = output or income (45 degree line) this is when S = I

Question 2

what happens when C + I is below the 45 degree line

Answer 2

level of savings > level of planned investment

inventories rise so firms reduce output, decreasing Y

Question 3

what happens when C + I is above 45 degree line

Answer 3

level of savings < level of planned investment

inventories fall so firms increase output, increasing Y