In the text, the equivalence of the goods market equilibrium in the IS model to the equilibrium in which desired investment equals desired saving is demonstrated, assuming that both government purchases and net exports are zero
Demonstrate the equivalence when both G and NX are non-zero.
In terms of output and expenditures, the equilibrium condition is Y = C + I + G + NX. Rearranging terms, Y - C - G = I + NX. For households, saving is Y - T - C. Government saving is T - G. National saving S = Y - T - C + T - G = Y - C - G. Substituting into the equilibrium equation, S = I + NX. Now, the combined saving by households and the government may be greater or less than investment, with the difference made up by a capital outflow (NX > 0 ) or capital inflow (NX < 0 ), respectively.
You might also like to view...
________ account for the largest portion of all firms; ________ account for most of the total revenue received by businesses
A) Proprietorships; partnerships B) Proprietorships; corporations C) Partnerships; corporations D) Corporations; proprietorships
The Lost Decade refers to the years between approximately
A) 1975 and 1985. B) 1980 and 1990. C) 1987 and 1997. D) 1972 and 1980. E) 1960 and 1970.
Suppose you have $400,000 saved up and purchase a medium-sized house for $200,000. Consider the following 2 scenarios:
i. The very next day, the prices of all houses, including the one you have just bought, double. ii. The very next day, the prices of all houses, including the one you bought, fall by half. Show that both scenarios increase your utility.
When price exceeds average variable cost in the short run, a competitive firm's marginal cost curve is regarded as its supply curve because
a. the position of the marginal cost curve determines the price for which the firm should sell its product. b. among the various cost curves, the marginal cost curve is the only one that slopes upward. c. the marginal cost curve determines the quantity of output the firm is willing to supply at any price. d. the firm is aware that marginal revenue must exceed marginal cost in order for profit to be maximized.