Equilibrium income, Managerial Economics

Equilibrium Income

In this model, aggregate desired expenditure has three components:  Consumption, Investment and Government Expenditure:

                                         E  = C + I + G

However, in the Governed Economy, taxes levied by the government are a second withdrawal.  If the government taxes firms, some of what firms earn is not available to be passed on to households.  If the government taxes households, some of what households earn is not available to be passed on firms.  Whatever subsequently happens to money raised, taxes withdraw expenditure from the circular flow.

In the Governed Economy, however, government expenditure is a second injection.  Such expenditure creates income for firms that does not arise from the spending of households, and it creates income for households that does not arise from the spending of firms.  Whatever the source of funds, government spending injects expenditure into the circular flow.

Letting G stand for Government Expenditure, T for Taxes, J for injections and W for withdrawals, we can say the National Income is in equilibrium when total withdrawals, savings plus taxes, is equal to total injections, investment plus government expenditure.  The equilibrium condition for national income can thus be written as:

                                                   W = J, or S + T = G + I

1138_equilibrium income.png

Posted Date: 11/28/2012 6:44:46 AM | Location : United States







Related Discussions:- Equilibrium income, Assignment Help, Ask Question on Equilibrium income, Get Answer, Expert's Help, Equilibrium income Discussions

Write discussion on Equilibrium income
Your posts are moderated
Related Questions

limitations of managerial ecomomics

explain baumol''s sales maximisation model in detail

How do I do a log linear regression in excel

The Barcelona Football Club is considering the signing of a player of international fame. The problem is that the player has a reputation for having a weak knee. The probability th

how realistic is the sales maximisation model from your experience with business objectives as persued by firms

Explain about the equilibrium in the labor market. Equilibrium into the Labor Market: All of firm will hire labor up to the point at that the value of the marginal product o

what is the full concept of discounting principles of managerial economics ?

define scarcityand oppurtunity cost.show how these concepts are useful in managerial decision making

Plot the demand schedule and draw the demand curve for the data given for Marijuana in the caseabove.