ECON 2 Lecture Notes - Lecture 11: Economic Equilibrium, Autarky, Aggregate Demand

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Equilibrium occurs when there is no tendency for change. In the macroeconomic goods market, equilibrium occurs when planned aggregate expenditure is equal to aggregate output. Planned aggregate expenditure (ae) = c + i. Thus at equilibrium; ae = y = c + i. If this condition does not hold then there will be dis-equilibrium. If y > ae, output is greater than planned aggregate expenditure and there will be unplanned increase in inventories. If y < ae, output is less than planned aggregate expenditure and there will be unplanned decrease in inventories. Therefore equilibrium occurs only when planned aggregate expenditure equals output. The s = i equilibrium condition of the goods market. Assuming an economy that does not involve in foreign trade, using the income approach national. Income (y) is expressed as y = c + s + t. Using the expenditure approach, it expressed as y = c + g + i = ad.

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