Concepts equilibrium of National Income

Concepts equilibrium of National Income

In the simple Keynesian Theory, the concepts of equilibrium is achieved when aggregate demand (AD) equal to aggregate supply (AS). 

There are three main sectors in economy;

·                     2 sectors economy

·                     3 sectors economy

·                     4 sectors economy

There are two methods of determination of national income

                                             i.                        Aggregate Demand = Aggregate Supply

                                           ii.                        Injection = Withdrawal @ leakages

 2 sectors economy

The components in 2 sectors economy are household and firm.

                                            i.            Aggregate Demand = Aggregate Supply

Aggregate Demand = consumption (C ) and investment (I)

Aggregate Supply = income (Y)

      AD = AS

      C + I = Y

 

                                            ii.            Injection = withdrawal @ leakages

Injection = Investment (I)

Leakages = Saving (S)

                            Injection      =     leakages

                           I       =     S

3 sectors and 4 sectors will be update later..