1.2 Relationship between Total Spending, Output, Income

By knoseda11, Oct 2009

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All economic activity revolves around?	Production of output Earning of income Spending of income (expenditure)
Consumption	Income is exchanged for goods and services
Financial Sector	Link between savers and investors (money saved is borrowed by firms wanting to invest).
Government sector	Raises revenue from taxes and charges. Spends to provide g & s for the community
G1 G2	G1- expenditure on current e.g. wages G2- expenditure on capital or investment goods expected to provide revenue in the future e.g. schools, hospitals
Define macroeconomic equilibrium	Occurs when the desired level of expenditure exactly equals the level of output produced and the income earned from that production No tenedancy to change.
I > S I = S I > S	I > S then the economy will expand and O, Y, E will increase I = S then the economy is in eqilibrium and there will be no change E = O = Y I < S then the economy will contract and O, Y, E will decrease

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