Question

In short-run equilibrium, leakages equal injections. So T=G and the budget is balanced Indicate     True or  ...

  1. In short-run equilibrium, leakages equal injections. So T=G and the budget is balanced

  2. Indicate     True or   False    

    Explanation: [Limit 40 words: 2 marks]

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Answer #1

The short-run equilibrium occurs where aggregate demand and aggregate supply are equal.

Depending on the changes in leakages and injections, AD may shift up or down. This determines the new equilibrium level in the short run.

While it is true that leakages equal injections in the short-run equilibrium, it is not necessary that the budget will always be balanced.

This is because there are also other components of leakages and injections, like savings and investments, respectively, or imports and exports, respectively. So even if the government budget is not balanced, the other components ensure that leakages equal injections.

Hence, the given statement is false.

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