İKTİSADA GİRİŞ II - Deneme Sınavı - 12

Underemployment Equilibrium Level is the level of equilibrium income in which some of the production factors are idle.

Deflationary Gap is the expenditure gap when the economy is in equilibrium below the full employment level of income.

Aggregate demand is called effective aggregate demand.

It is possible to mention three types of leakages from the income-expenditure flow: savings, taxes and imports for an open economy

In order for the equilibrium to be realized, the sum of the injections must be equal to the sum of the leakages.

In most of the developing countries, households have low level of saving. Contrary, the saving rate  in developed countries is high and, therefore, these savings are used more effectively to finance investment expenditures through well-functioning financial system.

Multiplier analysis tells us that an increase in autonomous spending has boosted the level of equilibrium income.

The determination of economic equilibrium based on aggregate demand or aggregate expenditure in the Keynesian model.

Aggregate supply and aggregate demand are equalized as production = income = spending equality is achieved at all points located on the 45° line we plot as aggregate line.

As the level of income increases, savings, taxes, and imports increase.

Multiplier is a useful tool for assessing the impact of changes in economic policies on the economy.

The Keynesian theory argue that the economy is not always be at full employment equilibrium because flexible prices and wages are not always valid. According to this opinion, there are many factors that prevent wages and prices from being flexible. For this reason, markets are moving away from fully competitive structure. Then (c) is incorrect.

The Keynesian theory argue that the economy is not always be at full employment equilibrium because flexible prices and wages are not always valid. According to this opinion, there are many factors that prevent wages and prices from being flexible. For this reason, markets are moving away from fully competitive structure. In some sectors the existence of firms that do not want to reduce prices may be the case. Prices in these sectors can remain at the same level for a long time instead of falling when there is a fall in demand or expenditure. Because of the existence of strong labor unions and long term wage contracts, the same is also true in labor markets.

Economic agents obtain the goods and services they demand by paying the cost, that is, by spending. If we rewrite our aggregate expenditure function for an open economy, we get: AE = C + I + G + NX

According to equation above, aggregate expenditures (AE) are the sum of consumption expenditures (C), investment expenditures (I), government expenditures (G) and net exports (NX). The aggregate expenditure function shows us the level of spending at each income level.

The negative difference between the actual GDP and the potential GDP in an economy is the negative GDP gap or deflationary gap, which is the loss of production due to underemployment in that country. In such a situation where production factors do not participate into production, there is a possibility of increasing employment and income by increasing aggregate expenditures in the economy

In an economy, there is no rule that investments are equal to savings, government expenditures are equal to taxes, and exports are equal to imports. In order for the equilibrium to be realized, the sum of the injections must be equal to the sum of the leakages. Accordingly, the equilibrium condition for an economy can be expressed as the sum of savings (S), taxes (T), and import (IM) should be equal to the sum of investments (I), government expenditures (G), and exports (EX) S + T + IM = I + G + EX

Leakages = (S+T+IM), Leakages are the factors that cause autonomous components of aggregate expenditures to reduce.

Injections = (I+G+EX), Injections are additions to income – expenditure flow

Leakages = (S+T+IM), Leakages are the factors that cause autonomous components of aggregate expenditures to reduce.

Injections = (I+G+EX), Injections are additions to income – expenditure flow

When the households decide to increase their savings without a change in income level, interesting contradiction called as saving paradox will arise.

households planning to save more and consume less now, but save the same amount. This is a paradox indicating that increasing saving reduces consumption and, therefore, income; however, at this new income level savings are at the same level. When you consider the fact that savings are used to finance investments in the country, this result contradicts the widespread belief that savings are beneficial for the economy.

Change in GDP = (1/(MPS + MPI)) x Change in G

MPS = 1 - MPC

Multiplier = 1/total leakages 

Multiplier = 1/(MPS + MPI)