In the Keynesian model, equilibrium levels of employment and national income are determined simultaneously through aggregate demand and aggregate supply (which together ensure macroeconomic equilibrium). In the Keynesian model employment is a function of output and output is equal to income. The relation between income and employment is dictated by the aggregate production function Y […]
Equilibrium Value of National Income and Employment | Macroeconomics
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National Income Determination in an Open Economy | Macroeconomics
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We may now present the four-sector model of national income determination by taking into account foreign trade, i.e., exports and imports. Now the economy has four sectors, viz., the households sector, the business sector, the government sector and the foreign trade (or the rest of the world) sector. We include the foreign trade in our […]
The Keynesian Three-Sector Model of National Income | Macroeconomics
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Since the government plays a very important role in a modern economy, we include the government in the analysis of income determination. The government is the third basic unit of an economy. Its basic objective is to create more jobs, promote faster economic growth and thus ensure maximum welfare. This is why it spends lots […]