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In economics, economic equilibrium is a situation in which the economic forces of supply and demand are balanced, meaning that economic variables will no longer change. [ 1 ] Market equilibrium in this case is a condition where a market price is established through competition such that the amount of goods or services sought by buyers is equal ...
In this simple economic model with a closed economy there are three uses for GDP (the goods and services it produces in a year). If Y is national income (GDP), then the three uses of C consumption, I investment, and G government purchases can be expressed as:
In economics, general equilibrium theory attempts to explain the behavior of supply, demand, and prices in a whole economy with several or many interacting markets, by seeking to prove that the interaction of demand and supply will result in an overall general equilibrium.
For example, Alexander Gerschenkron states that governments can substitute for missing prerequisites to trigger catch-up growth. A hypothesis by economic historians Kenneth Sokoloff and Stanley Engerman suggested that factor endowments are a central determinant of structural inequality that impedes institutional development in some countries.
The IS–LM model shows the relationship between interest rates and output in the short run in a closed economy. The intersection of the " investment – saving " (IS) and " liquidity preference – money supply " (LM) curves illustrates a " general equilibrium " where supposed simultaneous equilibria occur in both the goods and the money markets.
The circular flow of income is a concept for better understanding of the economy as a whole and for example the National Income and Product Accounts (NIPAs). In its most basic form it considers a simple economy consisting solely of businesses and individuals, and can be represented in a so-called "circular flow diagram." In this simple economy ...
It follows that the market value of total excess demand in the economy must be zero, which is the statement of Walras's law. Walras's law implies that if there are n markets and n – 1 of these are in equilibrium, then the last market must also be in equilibrium, a property which is essential in the proof of the existence of equilibrium.
This is the same as the formula for Kahn's multiplier in a closed economy assuming that all saving (including the purchase of durable goods), and not just hoarding, constitutes leakage. Keynes gave his formula almost the status of a definition (it is put forward in advance of any explanation [72]). His multiplier is indeed the value of "the ...