What is the income expenditure equilibrium?
In the income-expenditure model, the equilibrium occurs at the level of GDP where aggregate expenditures equal national income (or GDP). We can identify this equilibrium using algebra as well as graphically.
Where does equilibrium occur in an income expenditure diagram?
The equilibrium in the diagram occurs where the aggregate expenditure line crosses the 45-degree line, which represents the set of points where aggregate expenditure in the economy is equal to output, or national income.
What is the condition for equilibrium level of income?
An economy is said to be at its equilibrium level of income when aggregate supply and aggregate demand are equal. In other words, it is when GDP is equal to total expenditure.
What does the 45-degree line represent?
The 45-degree line shows all points where aggregate expenditures and output are equal. The aggregate expenditure schedule shows how total spending or aggregate expenditure increases as output or real GDP rises. The intersection of the aggregate expenditure schedule and the 45-degree line will be the equilibrium.
What is income expenditure?
An Income and Expenditure Account is the detailed summary of every income and expense incurred by an organisation in a specific financial year. These accounts primarily serve to find the surplus or deficit balance of an organisation, taking both current income and expenses into account.
Where is the macro equilibrium found in the income expenditure model graphically?
GDP
Macro equilibrium occurs at the level of GDP where the aggregate expenditure line crosses the 45-degree line (which shows all points where AE = Y).
How is equilibrium income determined in Keynesian model?
According to the Keynesian theory, the equilibrium level of income in an economy is determined when aggregate demand, represented by C + I curve is equal to the total output (Aggregate Supply or AS).
How is equilibrium level of income or employment determined?
How is equilibrium income determined in this model?
Equilibrium Level of Income: According to Keynesian model, the equilibrium level of national income is determined at a point where the aggregate demand curve intersects the aggregate supply curve. By definition, output equals income on each point of aggregate supply curve.
What is the relationship between aggregate income and aggregate expenditure?
Aggregate Income = GDP = Aggregate Expenditure. **The expenditure approach adds up the total spending on new production, while the income approach adds up all of the income earned by the resource suppliers in producing those goods and services. And in the end they add up to the same thing GDP.
Why does output income expenditure?
The ‘goods and services’ branch represents the total output of the economy and the ‘expenditure on goods and services’ branch represents the total expenditure of the economy. So the size of an economy can be measured using either the income, output or expenditure method. Hence, Income = Output = Expenditure.
What happens to aggregate expenditure when the price level decreases?
(Figure: I-E and AD) The Figure: I-E and AD depicts an upward shift in the aggregate expenditure function that results from a decrease in the overall price level. Specifically when the price level declines, the aggregate expenditure function shifts from “AE planned 1” to “AE planned 2.”
What is the equilibrium level of real GDP?
The equilibrium level of real GDP increases from $8 billion to $10 billion. demand shifts to the right. The economy is in a recession. Which is a fiscal policy that the government should adopt to strengthen the economy?
What is the change in real GDP when spending increases?
If the marginal propensity to consume is 0.9 and investment spending increases by $50 billion, the change in real GDP will be $5 billion. (Figure: Aggregate Expenditures I) Refer to the Figure: Aggregate Expenditures I. When real GDP is $700 billion, there will be a: $125 million increase in unplanned inventory investment.