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

Control of patulin, Control: In apples molded by Penicillium expansum, mos...

Control: In apples molded by Penicillium expansum, most of the patulin is confined to the region of damaged tissue and simply removing the lesions reduces the toxin by 90%, but i

What is the remaining wip for wc, Below is a simple/familiar (I hope) works...

Below is a simple/familiar (I hope) worksheet for the "Dice Game".  Answer the following questions given the data for the each Work Center's scheduled production:

Estimate the probability density function, It is assumed that the hazaed ra...

It is assumed that the hazaed rate for a pressure valve is given by h(t)= 1/5+t. 1. What is the cumulative probability function of failure F(t)? 11. What is probability densi

Illustrate the statement -currency inside banks is not money, Illustrate th...

Illustrate the statement - Currency inside banks is not money The fact that currency inside commercial banks is not money may strike you as odd, but it is an important principl

Consumption function in the as-ad model, Q. Consumption function in the AS-...

Q. Consumption function in the AS-AD model? Consumption. Suppose that P increases by say 10% whereas real GDP (Y) is constant. Nominal GDP and nominal national will now have

Quantitative data analysis and interpret , 1. To assess your ability to con...

1. To assess your ability to conduct quantitative data analysis and interpret the results of data analysis introduced inForecasting Trend. 2. To assess your ability to communicate

International trade, factor contribute long run trend of term of trade in d...

factor contribute long run trend of term of trade in developing country

Set up a diagram.., (a) Use this information to set up a diagram showing th...

(a) Use this information to set up a diagram showing the firm''s total revenue and total cost schedules. In this diagram, show the points at which the firm is maximizing profits.

Classical economic theory, Between 2007 and 2009 the U.S. economy experienc...

Between 2007 and 2009 the U.S. economy experienced a severe recession. In an effort to stimulate the economy, the federal government passed a stimulus package. Explain the federal

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