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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:
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 ...
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.
Equilibrium may also be economy-wide or general, as opposed to the partial equilibrium of a single market. Equilibrium can change if there is a change in demand or supply conditions. For example, an increase in supply will disrupt the equilibrium, leading to lower prices. Eventually, a new equilibrium will be attained in most markets.
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.
While a dynamic equilibrium occurs when two or more reversible processes occur at the same rate, and such a system can be said to be in a steady state, a system that is in a steady state may not necessarily be in a state of dynamic equilibrium, because some of the processes involved are not reversible. In other words, dynamic equilibrium is ...
Theorem — Let be a positive integer. If : {: =,, >} is a set-valued function with closed graph that satisfies Walras's law, then there exists an economy with households indexed by , with no producers ("pure exchange economy"), and household endowments {} such that each household satisfies all assumptions in the "Assumptions" section except the "strict convexity" assumption, and is the excess ...
The conceptual framework of equilibrium in a market economy was developed by Léon Walras [7] and further extended by Vilfredo Pareto. [8] It was examined with close attention to generality and rigour by twentieth century mathematical economists including Abraham Wald, [9] Paul Samuelson, [10] Kenneth Arrow and Gérard Debreu. [11]