questions about equilibirum level of income+output (1 Viewer)

[darshil]

We;ve just been learning this in class and I dont get some things, all help is greatly appreciated:

1) What is "the equilibrium level of income and output? - I cant put it in words

2) would injections be greater than withdrawals at the point where AD is greater that output (O)
-when AD is > O it means that people are demanding more and the firms are not responding, so they have to increase production and hence employ more factors of production leading to more income. So injections would be greater than withdrawals?

3) If an economy has leakages 0.3Y and injections are constant $400b calculate the equilibrium level of income:
-do i just do 0.3Y = 400 and solve for Y (which is $1333.33b)?

Thanks a lot, seriously

 

[gnrlies]

We;ve just been learning this in class and I dont get some things, all help is greatly appreciated:

1) What is "the equilibrium level of income and output? - I cant put it in words

Where Y = AD; i.e. the amount that is produced by firms is equal to the amount purchased by consumers i.e. there is no run down of stocks, and no build up of stocks. Think of it like a bakery. A bakery may produce 100 buns in a day because they anticipate that they will sell 100. They keep a stock of extras every day just in case they have excess demand (lets say 10 and lets say they never go stale). If demand is more than supply there will be an unintended run down of stocks (i.e. they will have to sell some of those 10 buns) and if there is excess supply they will have an unintended build up of stocks.

2) would injections be greater than withdrawals at the point where AD is greater that output (O)
-when AD is > O it means that people are demanding more and the firms are not responding, so they have to increase production and hence employ more factors of production leading to more income. So injections would be greater than withdrawals?

3) If an economy has leakages 0.3Y and injections are constant $400b calculate the equilibrium level of income:
-do i just do 0.3Y = 400 and solve for Y (which is $1333.33b)?

Thanks a lot, seriously

I will look at the others later I dont have time now

 

[darshil]

Thanks man, i really appreciate it

 

[gnrlies]

2) would injections be greater than withdrawals at the point where AD is greater that output (O)
-when AD is > O it means that people are demanding more and the firms are not responding, so they have to increase production and hence employ more factors of production leading to more income. So injections would be greater than withdrawals?

3) If an economy has leakages 0.3Y and injections are constant $400b calculate the equilibrium level of income:
-do i just do 0.3Y = 400 and solve for Y (which is $1333.33b)?

Thanks a lot, seriously

2 - Yes, when AD is more than Y it is caused by I+G+X > S+T+M

Your analysis doesn't follow though. Firms respond when injections are more than leakages, but they do so in the following period. It is just that production decisions have already been made and cannot change. I.e. when you watch a movie you cannot say mid movie "I wish there were more explosions" and expect the film maker to respond to your request. There is uncertainty assosciated with production and thats what can cause disequilibrium. So when I+G+X > S+T+M it simply implies that an economy demands more than it has produced in that period for a given set of prices.

3 - this is phrased a bit weird. What is the question you have been given? Usually when you see something like Y = 0.2Y + 300 it refers to a situation where income has both a structural / autonomous component, and an income dependent component. I.e. 0.2Y is the income dependent component, and 300 is the autonomous component. It usually doesn't have anything to do with leakages or injections unless you want to talk about the multiplier in which case you might like to think about the income dependent component as being 1/MPS