When government intervenes in a simple economy, it is termed a closed economy
Therefore, the aggregate income and expenditure components include Taxes(T), Government purchases(G) and transfers(Tr).
Only autonomous taxes are considered as taxes.

The following components are used to compute the equilibrium in the economy.

• Consumption (C)
• Savings(S)
• Autonomous taxes (T)
• Government Purchases (G)
• Transfers (TR)
• Investment (I)

The equilibrium can be explained with two approaches.

• Income and expenditure method.
• Withdrawals and Injections method.

Aggregate expenditure in a closed economy can be explained as the sum of private consumption expenditure (C) Investment (I) and government purchases.

It can be shown with the following equation.

E = C+I+G

If Y = E

Y = C+I+G

• Aggregate income (Y) in a closed economy equal the sum of expenditure on private
  consumption (C) Personal savings (S) and Autonomous taxes (T).
• It can be illustrated with the equation. Y = C+S+T
• Equilibrium in the closed economy can be shown through the withdrawals and injections method as,
  E = C+I+G
  Y = C+S+T
  Y = E
  C+I+G = C+S+T
  I+G = S+T
• Illustrates (S) Savings and illustrates (T) Autonomous taxes. illustrates (I) Investment and is the (G) Government purchases.
• The consumption function in a closed economy can be illustrated as,
  C = a+b (Y-T+TR)
  a = Autonomous consumption
  b = Marginal Propensity to consume
  T =Autonomous taxes
  TR = Transfers

The equilibrium in a closed economy can be illustrated in the following ways.

• With a statistical table
• With graphical presentation
• With equations

The equilibrium in a closed economy is calculated based on statistical schedule.

The equilibrium in a closed economy can be illustrated graphically.

 According to the above diagram point ‘A’ illustrates the equilibrium.