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The income the government receives flows to firms and households in the form of subsidies, transfers, and purchases of goods and services. [ 17 ] [ 18 ] Every payment has a corresponding receipt; that is, every flow of money has a corresponding flow of goods in the opposite direction.
Early results by Antonelli (1886) and Nataf (1953) had shown that, assuming all individuals face the same prices in a market, their income consumption curves and their Engel curves (expenditure as a function of income) should be parallel straight lines. This means that we can calculate an income-consumption curve of an entire society just by ...
For example, in the Keynesian depiction of the circular flow of income and expenditure, leakages are the non-consumption uses of income, including saving, taxes, and imports. In this model, leakages are equal in quantity to injections of spending from outside the flow at the equilibrium aggregate output.
Conversely, if income is greater than Y ', aggregate expenditure is less than aggregate income and firms will find that inventories are increasing. They will fire workers, and incomes will fall. Y ' is the only level of income at which there is no desire on the part of firms to change the number of people they employ.
Government spending or expenditure includes all government consumption, investment, and transfer payments. [1] [2] In national income accounting, the acquisition by governments of goods and services for current use, to directly satisfy the individual or collective needs of the community, is classed as government final consumption expenditure.
A variety of measures of national income and output are used in economics to estimate total economic activity in a country or region, including gross domestic product (GDP), Gross national income (GNI), net national income (NNI), and adjusted national income (NNI adjusted for natural resource depletion – also called as NNI at factor cost).
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