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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 + XSubtracting 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.
Can democracy survive if a majority of the citizenry pays little or nothing in taxes while benefiting directly from a higher level of government spending? Why or why not?
After some consultants point out that the Acme Toy Company has two bottlenecks in its production of xylophones and yo-yos. The first is a critical grinding machine that only has 9
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The circular flow of income in an open economy An open economy is one in which international trade exists. Assume also that there is government spending and taxation. Thus
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Using Simple Keynesian Model, discuss the effect of the following: a) An increase in govt. expenditure. b) A decrease in lump sum taxes. In this context compare the govt.
Aggregate demand in the cross model Because C and Im depends positively on Y while G, I and X are exogenous, aggregate demand Y D will depend positively on Y: Y D (Y) = C(
derive equations for IS,LM and AD curves.
describe national income
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