Explain augmented saving, Macroeconomics

Assignment Help:

Augmented Saving

An alternative way of determining equilibrium GDP is to find the level of income where the sum of desired injections equals the sum of desired leakages. Desired injections include Investment (I)Government Spending (G), and Exports (X). Leakages include Saving (S)Taxes (T), and Imports (M). Thus, the condition for equilibrium is:
                         
S + T + M = I + G + X

Subtracting G and M from both side of the above equation gives
               
S + (T - G) = I + (X - M)

This equation can be interpreted as a generalization of the condition that saving equals investment, since it says that national saving equals asset formation.

What happens when desired national assets formation exceeds desired national saving?
 
Firms will respond to the imbalance by producing more, moving the economy towards equilibrium.

What happens when desired national saving is more than desired national asset formation?

Firms will cut back on output in order to avoid accumulating excess inventories, and the economy will move towards equilibrium.

 


Related Discussions:- Explain augmented saving

AS/AD model, In an effort to provide tax relief for households while still ...

In an effort to provide tax relief for households while still balancing the budget, Congress votes to raise business taxes and decrease personal taxes. explain the impact of these

Consumer safety and product information, Can you think of examples where th...

Can you think of examples where the government does not intervene enough when it comes to consumer safety and product information? Examples where too much intervention is the case

Question one hw, A small country can import a good at a world price of 10 p...

A small country can import a good at a world price of 10 per unit. The domestic supply curve of the good is S = 20 + 10P The demand curve is D = 400 – 5P In addition, each unit of

Calculate the value of delta , Consider the following prisoners' dilemma ga...

Consider the following prisoners' dilemma game.    C D C 4,4 0,6 D 6,0 1,1

Interest rate effect, Could you explain the "interest rate effect" in terms...

Could you explain the "interest rate effect" in terms of the slope of a curve?

Explain why interest rates are pro-cyclical, Critically explain why interes...

Critically explain why interest rates are pro-cyclical, using the supply and demand for bonds framework.

Estimated profit of typical start-up businesses, Typical start-up businesse...

Typical start-up businesses' estimated profit are forecasted as following: State Bad Good Probability 81% 21%

What would be due process require in circumstances, The Russ College of Eng...

The Russ College of Engineering and Technology of Ohio University announced in a press conference that it had found "rampant and flagrant plagiarism" in the theses of mechanical en

Define the natural rate of unemployment, Define the Natural rate of unemplo...

Define the Natural rate of unemployment Natural rate of unemployment is defined as the sum of rates of structural, frictional, and classical unemployment (excluding cyclical un

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