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Macroeconomics: Theory and Policy by Vanita Agarwal

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7

The Keynesian Model of Income Determination in a Three Sector Economy: Introduction of the Government Sector

After studying this topic, you should be able to understand

  • Three main activities of the government are government expenditure, transfers and taxes.
  • Income leakages are in the form of saving and taxes, and injections are in the form of investment and government expenditure.
  • There are two approaches to income determination in a three sector model, aggregate demand—aggregate supply approach and leakages equal injections approach.
  • An economy can achieve a full employment output by an expansion in its budget, financing every rupee of additional expenditure with a rupee of additional taxes.
  • Introduction of Government Transfer Payments has ...

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