In the income-expenditure model, equilibrium output is the level of output at which the 45-degree line intersects the planned expenditures line. Explain why this output level is an equilibrium level
Illustrate your answer with a diagram of the income-expenditure model.
Equilibrium refers to a position of rest or one in which there are no forces acting to cause a change. At the intersection of the spending line and the 45-degree line this is the case because spending is equal to y, which represents output and income. Therefore all income is being spent and all the output produced has been purchased. At any point other than this intersection this equality will not hold and there will be either insufficient production (based on excess demand) or excess production (based on insufficient demand) and a tendency for y to change.
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Which of the following statements is true of the Europeans in the period of colonization?
A) Europeans set up extractive economic institutions in all areas. B) Europeans set up relatively extractive economic institutions in areas that had greater population densities. C) Europeans set up relatively inclusive economic institutions in areas that had greater population densities. D) Europeans set up inclusive economic institutions in all areas.
A demand curve:
a. has a positive slope. b. illustrates the negative relationship between price and quantity demanded. c. illustrates the positive relationship between price and quantity demanded. d. is based on the assumption of a stable supply curve. e. shifts about in a random fashion.