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Under standard assumptions about the determinants of aggregate expenditure, the AD curve is flatter than the 45-degree line and the equilibrium level of income, Y ', is stable. If income is less than Y ' , aggregate expenditure exceeds aggregate income and firms will find that their inventories are falling.
In figure 3, the income–consumption curve bends back on itself as with an increase income, the consumer demands more of X 2 and less of X 1. [3] The income–consumption curve in this case is negatively sloped and the income elasticity of demand will be negative. [4] Also the price effect for X 2 is positive, while it is negative for X 1. [3]
A change in equilibrium price may occur through a change in either the supply or demand schedules. For instance, starting from the above supply-demand configuration, an increased level of disposable income may produce a new demand schedule, such as the following:
An increased deficit by the national government shifts the IS curve to the right. This raises the equilibrium interest rate (from i 1 to i 2) and national income (from Y 1 to Y 2), as shown in the graph above. The equilibrium level of national income in the IS–LM diagram is referred to as aggregate demand.
The classical general equilibrium model aims to describe the economy by aggregating the behavior of individuals and firms. [1] Note that the classical general equilibrium model is unrelated to classical economics , and was instead developed within neoclassical economics beginning in the late 19th century.
Calculating the equilibrium price of just one good, in theory, requires an analysis that accounts for all of the millions of different goods that are available. It is often assumed that agents are price takers , and under that assumption two common notions of equilibrium exist: Walrasian, or competitive equilibrium , and its generalization: a ...
Keynesian economists often calculate multipliers that measure the effect on ... so present consumption is a function of past income ... The equilibrium level of Y ...
The disposable income of the households is the income Y minus the taxes net of transfers: = + Disposable income can only be used for saving or for consumption: = + where the subscript P denotes the private sector.