- The determination of the equilibrium level will be examined using a two-sector model (households and firms). Simply put, it is assumed that there is no foreign industry or government in the economy.
- It is also assumed that investment expenditure is autonomous, i.e., that income level does not have any impact on investments.
- It is assumed that the pricing level is constant.
- Also, to determine equilibrium output, short-run will be considered.
Determination of Equilibrium Level of Income: AD-AS Approach and S-I Approach