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Question
What will happen to the level of circular flow of income in the following situation?
S = I
Short Answer
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Solution
When savings (S) = investment (I) in a closed economy, the circular flow of income remains in equilibrium.
- All income that is saved is exactly offset by investment.
- There is no unintended accumulation or depletion of inventories.
- The total income generated in the economy continues to circulate without any disruption.
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