The circular flow of income in a closed economy, Macroeconomics

Assignment Help:

 

The circular flow of income in a closed economy 

A closed economy exists when there is no international trade. We shall also assume that in this particular closed economy there is no government spending or taxation. Here households have two alternatives used for their income - they can consume it or they can save it. Savings are (S).

AD consists of consumption (C) and Savings (S).S are lost to Y and will reduce the level of Y. However, some (if not all) of S will be used to finance investment (I). I is the creation of real capital goods such as machinery and factories, and adds to Y. If S = I, then Y is in equilibrium. 

 

651_The circular flow of income in a simple economy where all income is consumed.png

 

 

 

 

 

 

In this economy             

 

               Y = AD

Therefore, Y = C + I

In equilibrium S = I

However, if S is greater than I, AD and Y will fall. If I is greater than S, AD and Y will rise. 

 


Related Discussions:- The circular flow of income in a closed economy

Energy and the Environment, Following on papers by Pacala and Socolow,1 The...

Following on papers by Pacala and Socolow,1 The Carbon Mitigation Initiative at Princeton University, http://cmi.princeton.edu/ has summarized carbon stabilization strategies at

Show the investment function in the IS-LM model, Q. Show the investment fun...

Q. Show the investment function in the IS-LM model? The investment function in the IS-LM model Investment was an exogenous variable in cross model owing to the fact that

Monetary sector of the economy, how do i calculate how much the gorverment ...

how do i calculate how much the gorverment should spend if the MPC is 0.8 and 200million is requered to reach full employment ?

Classical model, using a graph of the classical labour market, illustrate t...

using a graph of the classical labour market, illustrate the effects of a real wage existing in the market that is lower than the equilibruim real wage.what will eventually happen

Reaganomics, Reaganomics Supply-side economics or New Classical Econom...

Reaganomics Supply-side economics or New Classical Economics has gained distinct prominence in the early 1980s with the election in the U.S.A of a conservative government unde

Determinants of long run prosperity rank, The questions posed are broad and...

The questions posed are broad and open ended so be careful to allow yourself enough research and planning time. If you are completely on top of the material delivered in class, the

Determine the term- nominal wages, Determine the term- Nominal wages Th...

Determine the term- Nominal wages The nominal wage is wage per unit of time in currency used in the country- what we mainly just call wage. When we refer to wage in macroeconom

Determine the optimum prices and outputs-probability, Given the following: ...

Given the following: Airbus Boeing Demand P = 182.868 - 0.0003Q P = 198.6592 - 0.00013Q TVC Curve TVC = 104.8822Q - 0.001Q^2 + 0.09Q^3 TVC = 25.8678Q - 0.00023Q^2 + 0.4Q^3 In

Equilibrium price and quantity of hybrid vehicles, Suppose gasoline and hyb...

Suppose gasoline and hybrid vehicles are substitutes. Draw a graph indicating what will happen in the market for hybrid vehicles if the price of gasoline increases. Be sure to labe

Write Your Message!

Captcha
Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd