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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.
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.
Important macroeconomic variables include the overall price level, the interest rate, the level of employment, and income (or equivalently output) measured in real terms. The classical tradition of partial equilibrium theory had been to split the economy into separate markets, each of whose equilibrium conditions could be stated as a single ...
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:
Supply chain as connected supply and demand curves. In microeconomics, supply and demand is an economic model of price determination in a market.It postulates that, holding all else equal, the unit price for a particular good or other traded item in a perfectly competitive market, will vary until it settles at the market-clearing price, where the quantity demanded equals the quantity supplied ...
D 2 is explained as 'the volume of investment', and the equilibrium condition determining the level of employment is that D 1 +D 2 should equal Z as functions of N. D 2 can be identified with I (r). The meaning of this is that in equilibrium the total demand for goods must equal total income.
In economics and particularly in consumer choice theory, the income-consumption curve (also called income expansion path and income offer curve) is a curve in a graph in which the quantities of two goods are plotted on the two axes; the curve is the locus of points showing the consumption bundles chosen at each of various levels of income.
If S + T + M > I + G + X the levels of income, output, expenditure and employment will fall causing a recession or contraction in the overall economic activity. But if S + T + M < I + G + X the levels of income, output, expenditure and employment will rise causing a boom or expansion in economic activity.