Equilibrium income or national income level in Keynesian simple income-expenditure model is a definite equation when the amount of "injections" becomes equal to the amount of "leaks". In this case, the equilibrium can be at full or part-time employment (for example, in conditions of unemployment).
Instructions
Step 1
There are two methods that help determine the equilibrium level of income. In this case, you can choose the most suitable one for making the necessary calculations.
Step 2
Use the data as a graph. In this case, it is necessary to determine the indicator (point) at which the sum of total demand will be equal to the national income (intersection of the lines).
Step 3
Find another point at which the value of injections will be equal to the sum of the outflows. In this case, the equilibrium level of income (for example, Y) can be considered quite stable, because at any other level of income, economic forces can arise that direct the country's economy to the equilibrium position.
Step 4
Determine the equilibrium income using the second method. To do this, consider an example: the prevailing level of income is a level equal to 50 million rubles. In turn, this means that goods and services were produced for the aforementioned amount with a total demand of 46 million rubles. In this regard, firms will find that they have increased inventories and will begin to reduce the volume of production activities. Similarly, if the income were 30 million rubles, then the total demand would be equal to 34 million rubles (50 - 46 = 4, 30 + 4 = 34, i.e. after the change between demand and production) and would exceed the value of the volume of production. In this case, stocks would be reduced and organizations could make efforts to increase production. It should be borne in mind that the ability of companies to increase the production volume in such a situation will directly depend on the availability of their own unused resources. In this case, the equilibrium income is 30 million rubles.
Step 5
Please note that according to the theory of the scientist Keynes, at an equilibrium level of the economy, investment should not necessarily equal savings. Keynes argued that the total amount of savings depends mainly on the national income (its level) and depends less on the interest rate. In turn, investments depend mainly on the interest rate.
