{"id":5467,"date":"2019-02-14T10:31:57","date_gmt":"2019-02-14T05:01:57","guid":{"rendered":"http:\/\/astan.lk\/al_virtualclassroom\/?p=5467"},"modified":"2019-02-16T10:35:46","modified_gmt":"2019-02-16T05:05:46","slug":"macroeconomic-equilibrium","status":"publish","type":"post","link":"https:\/\/astan.lk\/al_virtualclassroom\/macroeconomic-equilibrium\/","title":{"rendered":"Macroeconomic equilibrium"},"content":{"rendered":"<p>Income is generated through the production process and that income will be spent to purchase goods and services.<\/p>\n<h3><span style=\"color: #000000;\"><strong>The components of aggregate expenditure are as follows<\/strong><\/span><\/h3>\n<ul>\n<li>Private consumption<\/li>\n<li>Government consumption expenditure<\/li>\n<li>Investment expenditure<\/li>\n<li>Net export<\/li>\n<\/ul>\n<p>The consumption expenditure depends on the disposable income. C = f (Yd)<\/p>\n<h3><span style=\"color: #000000;\"><strong>Private consumption expenditure comprises<\/strong><\/span><\/h3>\n<ul>\n<li>Buying durable consumer goods<\/li>\n<li>Buying non durable consumer goods<\/li>\n<li>Buying services<\/li>\n<\/ul>\n<p>The expenditure on capital goods is, investment expenditure .Example: Machinery, tools, housing and etc.<\/p>\n<p>Government expenditure spent to purchase goods and services from private sector to provide various economic activities.<\/p>\n<p>Example:<\/p>\n<ul>\n<li>Provide public goods<\/li>\n<li>Provide merit goods<\/li>\n<li>National security<\/li>\n<li>Government administrative cost<\/li>\n<\/ul>\n<p>The difference between export revenue and import expenditure is net exports<br \/>\nThis net export can be either negative or positive.<\/p>\n<h3><span style=\"color: #000000;\"><strong>The determinants of private consumption can be shown as follows.<\/strong><\/span><\/h3>\n<ul>\n<li>Disposable income<\/li>\n<li>The wealth of households<\/li>\n<li>Levy of taxes by the government<\/li>\n<li>Loans of households<\/li>\n<\/ul>\n<p>&nbsp;<\/p>\n<ul>\n<li>The determinants of investment expenditure are; as follows Demand for goods produced through new investments.<\/li>\n<li>Changes of interest rates and corporate taxes.Business expectations<\/li>\n<\/ul>\n<h3><span style=\"color: #000000;\"><strong>The factors of determining the government consumptions expenditure are as follows<\/strong><\/span><\/h3>\n<ul>\n<li>Usage of public goods<\/li>\n<li>The expenditure on welfare goods<\/li>\n<li>The expenditure on public administration<\/li>\n<\/ul>\n<p>Aggregate income (Y) and aggregate expenditure (E) are equal in macroeconomic equilibrium.<\/p>\n<h3><span style=\"color: #000000;\"><strong>This can be illustrated through two approaches.<\/strong><\/span><\/h3>\n<ul>\n<li>Withdrawers and injection approach<\/li>\n<li>Income and expenditure approach<\/li>\n<li>Income and expenditure approach illustrates the equilibrium in a simple economy as,<br \/>\nAggregate income= Aggregate expenditure \u00a0Y = E<\/li>\n<li>In a simple economy the determinants of aggregate expenditure (E) are Private consumption expenditure and investment expenditure<\/li>\n<li>It can be illustrated with the following equation E= C+I<\/li>\n<\/ul>\n<p>Aggregate income is utilized for consumption expenditure and savings in a simple economy<br \/>\nIt can be illustrated with the following equation. Y = C+S<\/p>\n<p>With withdrawers and injections approach, the equilibrium in a simple economy can be<br \/>\nillustrated as follows<br \/>\nY = C+S<br \/>\nE = C+I<br \/>\nY = E<br \/>\nC+S = C+I<br \/>\nS = I<br \/>\nSavings are withdrawers (W) and investments as the injections (J). Therefore with- drawals and injections are equal in the equilibrium.<br \/>\nThe consumption function can be illustrated as follows.<\/p>\n<p>C = a+byd C = Consumption<br \/>\na = autonomous consumption<br \/>\nb = Marginal propensity to consume<br \/>\ny = Disposable income<br \/>\nAutonomous consumption is determinants independent of current income.<\/p>\n<p>Marginal propensity to consume shows the fraction of change income which is<br \/>\nconsumed.<br \/>\nIt can be calculated as follows<\/p>\n<p>MPC = \u0394C\/\u0394Y<br \/>\nb = Marginal propensity to consume (MPC)<br \/>\n\u0394c = Change in consumption<br \/>\n\u0394y = Change in income<\/p>\n<p>The consumption function can be illustrated with a graph.<\/p>\n<p><a href=\"http:\/\/astan.lk\/al_virtualclassroom\/wp-content\/uploads\/2017\/01\/rg4y-2.jpg\"><img loading=\"lazy\" decoding=\"async\" class=\"fancybox aligncenter wp-image-8642 size-full\" src=\"http:\/\/astan.lk\/al_virtualclassroom\/wp-content\/uploads\/2017\/01\/rg4y-2.jpg\" alt=\"rg4y (2)\" width=\"447\" height=\"253\" \/><\/a><\/p>\n<p>Saving function also can be illustrated as<br \/>\nS = -a + (1-b) yd<br \/>\nS = Savings<br \/>\na = autonomous savings<br \/>\n(1-b) = Marginal propensity to save (MPS)<br \/>\nMarginal propensity to save shows that a fraction of change in income which is saved. It can be calculated as<\/p>\n<p>MPS = \u0394S\/\u0394Y<br \/>\n\u0394S = Change in savings<br \/>\n\u0394Y = Change in income<br \/>\nMPS = Marginal propensity to save<br \/>\nSaving function also can be illustrated graphically.<\/p>\n<p><a href=\"http:\/\/astan.lk\/al_virtualclassroom\/wp-content\/uploads\/2017\/01\/tyr-2.jpg\"><img loading=\"lazy\" decoding=\"async\" class=\"fancybox aligncenter wp-image-8644 size-full\" src=\"http:\/\/astan.lk\/al_virtualclassroom\/wp-content\/uploads\/2017\/01\/tyr-2.jpg\" alt=\"tyr (2)\" width=\"495\" height=\"290\" \/><\/a><\/p>\n<p>Assuming that though the income is changed, the investment is constant in a simple<br \/>\neconomy According it, the investment can be shown as<\/p>\n<p><a href=\"http:\/\/astan.lk\/al_virtualclassroom\/wp-content\/uploads\/2017\/01\/hjft-2.jpg\"><img loading=\"lazy\" decoding=\"async\" class=\"fancybox aligncenter wp-image-8645 size-full\" src=\"http:\/\/astan.lk\/al_virtualclassroom\/wp-content\/uploads\/2017\/01\/hjft-2.jpg\" alt=\"hjft (2)\" width=\"420\" height=\"240\" \/><\/a><\/p>\n<h3><span style=\"color: #000000;\"><strong> Equilibrium in a simple economy can be computed with, <\/strong><\/span><\/h3>\n<ul>\n<li>a schedule<\/li>\n<li>graphical presentation<\/li>\n<li>Equations<\/li>\n<\/ul>\n<p>Equilibrium can be calculated with a schedule in a simple economy<\/p>\n<p><a href=\"http:\/\/astan.lk\/al_virtualclassroom\/wp-content\/uploads\/2017\/01\/tyurty-2.jpg\"><img loading=\"lazy\" decoding=\"async\" class=\"fancybox aligncenter wp-image-8647 size-full\" src=\"http:\/\/astan.lk\/al_virtualclassroom\/wp-content\/uploads\/2017\/01\/tyurty-2.jpg\" alt=\"tyurty (2)\" width=\"525\" height=\"367\" \/><\/a><\/p>\n<p>The equilibrium of a simple economy can be computed graphically<\/p>\n<p><a href=\"http:\/\/astan.lk\/al_virtualclassroom\/wp-content\/uploads\/2017\/01\/u-2.jpg\"><img loading=\"lazy\" decoding=\"async\" class=\"fancybox aligncenter wp-image-8648 size-full\" src=\"http:\/\/astan.lk\/al_virtualclassroom\/wp-content\/uploads\/2017\/01\/u-2.jpg\" alt=\"u (2)\" width=\"638\" height=\"417\" \/><\/a><\/p>\n<p>&nbsp;<\/p>\n<p>According to the diagram, national Income is illustrated with the point E.<br \/>\nThe equilibrium in a simple economy can be calculated with the graph and equations<br \/>\nalso.<\/p>\n<p>Change in equilibrium in a simple economy depends on the following components.<\/p>\n<ul>\n<li>Change in consumption function.<\/li>\n<li>Change in investment.<\/li>\n<\/ul>\n<p>Change in consumption function depends on two factors.<\/p>\n<ul>\n<li>Change in autonomous consumption<\/li>\n<li>Change in Marginal Propensity to consume (M.P.C)<\/li>\n<\/ul>\n<p>Change in consumption function can be illustrated with the change in autonomous consumption.<\/p>\n<p><a href=\"http:\/\/astan.lk\/al_virtualclassroom\/wp-content\/uploads\/2017\/01\/rt-2.jpg\"><img loading=\"lazy\" decoding=\"async\" class=\"fancybox aligncenter wp-image-8649 size-full\" src=\"http:\/\/astan.lk\/al_virtualclassroom\/wp-content\/uploads\/2017\/01\/rt-2.jpg\" alt=\"rt (2)\" width=\"432\" height=\"197\" \/><\/a><\/p>\n<p>&nbsp;<\/p>\n<p>&nbsp;<\/p>\n<p><a href=\"http:\/\/astan.lk\/al_virtualclassroom\/wp-content\/uploads\/2017\/01\/rt-3.jpg\"><img loading=\"lazy\" decoding=\"async\" class=\"fancybox alignleft wp-image-8650 size-full\" src=\"http:\/\/astan.lk\/al_virtualclassroom\/wp-content\/uploads\/2017\/01\/rt-3.jpg\" alt=\"rt (3)\" width=\"331\" height=\"229\" \/><\/a><\/p>\n<p>&nbsp;<\/p>\n<p>According to the above diagram, the consumption function has changed due to the change in autonomous consumption.<br \/>\nThe aggregate expenditure curve has also shifted due to the change in consumption curve.<br \/>\nThe equilibrium output level has also changed.<br \/>\nThe equilibrium level can be changed with the change in Marginal Propensity t<a href=\"http:\/\/astan.lk\/al_virtualclassroom\/wp-content\/uploads\/2017\/01\/fdgh-2.jpg\"><img loading=\"lazy\" decoding=\"async\" class=\"fancybox aligncenter wp-image-8653 size-full\" src=\"http:\/\/astan.lk\/al_virtualclassroom\/wp-content\/uploads\/2017\/01\/fdgh-2.jpg\" alt=\"fdgh (2)\" width=\"365\" height=\"416\" \/><\/a><\/p>\n<ul>\n<li>The slope of the consumption curve is changed because of change in marginal propensity to consume.<\/li>\n<li>Slope of Aggregate expenditure is also changed with the slope of consumption curve.<\/li>\n<li>The equilibrium level has also changed. In a simple economy, the equilibrium<br \/>\nlevel has also changed due to change in investment.<\/li>\n<\/ul>\n<p><a href=\"http:\/\/astan.lk\/al_virtualclassroom\/wp-content\/uploads\/2017\/01\/tuy-2.jpg\"><img loading=\"lazy\" decoding=\"async\" class=\"fancybox aligncenter wp-image-8654 size-full\" src=\"http:\/\/astan.lk\/al_virtualclassroom\/wp-content\/uploads\/2017\/01\/tuy-2.jpg\" alt=\"tuy (2)\" width=\"387\" height=\"422\" \/><\/a><\/p>\n<p>Investment curve is changed due to change in investment.<br \/>\nWhen investment curve is changed, the expenditure curve also will be changed.<br \/>\nTherefore the equilibrium level of output also will be changed.<\/p>\n<p>Because of the change in autonomous expenditure, the influence to change the output is<br \/>\nexplained as the multiplier effect. (K)<br \/>\nThe change in the autonomous expenditure of a simple economy, that is the<br \/>\nautonomous consumption and autonomous investment influence the multiplier effect.<br \/>\nMultiplier in a simple economy can be computed as follows.<br \/>\nMultiplier in a simple economy = K<\/p>\n<p>K=1\/(1-b)<\/p>\n<p>b= Marginal Propensity to consume<\/p>\n<p>\u2022 This can be explained with a simple example. change in autonomous expenditure causes to change the output<br \/>\nThis can be illustrated with the multiplier.<\/p>\n<p>Y = \u00a0(1\/(1-b) )X \u0394I<\/p>\n<p>\u0394Y = Change in income<br \/>\n\u0394I = Change in autonomous investment<\/p>\n<p>&nbsp;<\/p>\n<ul>\n<li>Change in output is computed with a multiplier when autonomous expenditure is changed.<br \/>\nThis is explained with the following example.<br \/>\nAssuming Marginal Propensity to consume is 0.75 when investment (I) is increased<br \/>\nfrom 50 to 100.<br \/>\nChange in output is ,<\/li>\n<\/ul>\n<p>\u0394Y = \u00a01\/(1-b) X I<\/p>\n<p>\u0394Y = (1\/ (1-0.75) )X (100-50)<\/p>\n<p>\u0394Y = 4 x 50<\/p>\n<p>\u0394Y =200<\/p>\n<p>This can be illustrated with the following diagram<\/p>\n<p><a href=\"http:\/\/astan.lk\/al_virtualclassroom\/wp-content\/uploads\/2017\/01\/ghj-2.jpg\"><img loading=\"lazy\" decoding=\"async\" class=\"fancybox aligncenter wp-image-8657 size-full\" src=\"http:\/\/astan.lk\/al_virtualclassroom\/wp-content\/uploads\/2017\/01\/ghj-2.jpg\" alt=\"ghj (2)\" width=\"329\" height=\"229\" \/><\/a><\/p>\n<p>Multiplier effect can be also explained with a statistical table example.<\/p>\n<p>Equillibrium level of output depends on a level of full employment or \u00a0outer.<\/p>\n<p>&nbsp;<\/p>\n","protected":false},"excerpt":{"rendered":"<p>Income is generated through the production process and that income will be spent to purchase goods and services. The components of aggregate expenditure are as follows Private consumption Government consumption expenditure Investment expenditure Net export The consumption expenditure depends on the disposable income. C = f (Yd) Private consumption expenditure comprises Buying durable consumer goods [&hellip;]<\/p>\n","protected":false},"author":842,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"_monsterinsights_skip_tracking":false,"_monsterinsights_sitenote_active":false,"_monsterinsights_sitenote_note":"","_monsterinsights_sitenote_category":0,"footnotes":""},"categories":[54,2687],"tags":[],"class_list":["post-5467","post","type-post","status-publish","format-standard","hentry","category-economics","category-unit-5-en"],"acf":[],"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v26.9 - https:\/\/yoast.com\/product\/yoast-seo-wordpress\/ -->\n<title>Macroeconomic equilibrium - Learning &amp; Education Portal<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/astan.lk\/al_virtualclassroom\/macroeconomic-equilibrium\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Macroeconomic equilibrium - Learning &amp; Education Portal\" \/>\n<meta property=\"og:description\" content=\"Income is generated through the production process and that income will be spent to purchase goods and services. 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