Q2. In the Keynesian cross model, equilibrium in the economy is obtained where planned spending
equals actual spending.
(a) Explain what planned spending and actual spending are
(b) Graphically present the equilibrium condition of the economy in the Keynesian cross model.
(c) Explain how the economy adjusts to equilibrium if the economy finds itself with a level of
planned spending which is less than actual spending (3 marks)
(d) Explain why an increase in government spending leads to a greater increase in income

Answer rating: 100% (QA)

Solution a Planned Spending Planned spending refers to the total amount of spending that households businesses and the government intend to undertake ... View the full answer