4.11. Equilibrium national income

Question 1

Equilibrium National Income

Answer 1

the level of real national income (real GDP) where planned expenditure (AE or AD) is equal to the output firms are willing to supply (AS)

Question 2

3 approaches to Equilibrium National Income

Answer 2

1) Aggregate demand and aggregate supply (AD = AS)
2) Aggregate expenditure (AE = Y)
3) Injections and withdrawals (Injections = Withdrawals)

Question 3

Aggregate demand and aggregate supply

Answer 3

Equilibrium National Income is at where AD = AS

• General diagram
• Keynesian diagram
• Classical diagram

Question 4

Aggregate expenditure

Answer 4

Equilibrium National Income is at where AE = Y

• real GDP level
• AE = Y, injections = withdrawals

Question 5

Aggregate expenditure with multiple sectors

Answer 5

Two sector:
C + I (AE) = Y
- lowest graph

Three sector:
C + I + G (AE) = Y

Four sector:
C + I + G + (X - M) (AE) = Y
- highest graph

Question 6

Injections and withdrawals (Injections = Withdrawals) Graphs

Answer 6

• y-axis = injections / withdrawals
• x-axis = Real GDP
• injections graph horizontal
• withdrawal graph positive gradient from below x-axis to above

Question 7

Injections and withdrawals (Injections = Withdrawals)

Answer 7

Two sector:
I = S

Three sector:
I + G = S + T

Four sector:
I + G + X = S + T + M

Question 8

Increase in Injections

Answer 8

• Injections graph moves upwards

- Real GPP level increases from Y1 to Y2

Question 9

Decrease in Withdrawals

Answer 9

• Withdrawals graph moves upwards

- Real GPP level decreases from Y1 to Y2