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
MONOPOLISTIC PRACTICES The following practices may be said to characterize monopolies. Exclusive dealing to supply and collective boycott Producers agree to supply onl

features of monopoly

The individual and market demand curves The quantities and prices in the demand schedule can be plotted on a graph. Such a graph after the individual demand schedule is called

Let consider the following game among an employer (Katharine) and an employee (Kevin). Katharine needs Kevin to work hard rather than loaf around and  that is why she considers spe

Nature and Functions of Money The concept of money is very difficult to define . it is belongs to the category of things which are not amenable to any single definition. It is p

A firm can produce steel with or without a filter on its smokestack. If it produces without a filter, the external costs on the community are $500,000 per year. If it produces with

Oligopoly can be characterized as follows: Small Number of Sellers: There are more than one sellers of a product though; the number isn't so huge in order to produce perfect

Q. Explain about Smooth Convex Isoquant? Smooth Convex Isoquant: This kind of isoquant presumes continuous substitutability of capital and labour over a certain range, beyond

Q. What is Production and Cost Function? Production functions and cost functions are the keystones of managerial and business economics. A production function is a mathematical

Q. Illustrate Internal Economies of Scale? Internal economies of scale are the benefits of large scale production. They are enjoyed by the firm when it increases its scale of p