As per Walras’ law, the sum of excess demand for money, bonds, and current output must be equal to

Correct option is B

Correct Answer: (b) zero
Explanation:

• Walras' Law is a fundamental principle in general equilibrium theory which states that the sum of the value of excess demands across all markets in an economy must equal zero, whether or not the economy is in general equilibrium.
  
• Mathematically, if an economy has $$n$$​ markets, and $$P_i$$​ is the price and $$ED_i$$ is the excess demand (Demand - Supply) in market $$i$$ , then: $$\sum_{i=1}^{n} P_i \cdot ED_i = 0$$​​
  
• In the context of the question, the economy consists of three markets: money, bonds, and current output (goods). Therefore, the sum of excess demands for these three must equate to zero.
• This implies that if there is positive excess demand in one market (e.g., goods), there must be a corresponding negative excess demand (excess supply) in the other markets (e.g., money or bonds).
  

Information Booster:

• Logical Basis: Walras' Law is derived from the aggregated budget constraints of all agents in the economy. Since every agent's total expenditure must equal their total income (including borrowing/savings), the economy-wide demand must equal economy-wide supply.
  
• Implication for Equilibrium: A significant corollary of Walras' Law is that if  $$n-1$$​ markets are in equilibrium (excess demand is zero), the $$n^{th}$$​ market must also be in equilibrium.
• Disequilibrium: Even if markets are not in equilibrium (prices are not market-clearing), the identity still holds—aggregate excess demand is always zero.
  

Additional Information:

• (a) One: This is Incorrect. A sum of one would imply that there is more purchasing power manifesting as demand than there is value in supply, which violates the budget constraint of the economy.
  
• (c) & (d) More/Less than one: These are Incorrect as they imply a disparity between total income and total expenditure possibilities in the aggregate economy, which is impossible in a closed accounting system.