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Macroeconomics: Theory and Policy by Vanita Agarwal

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8

The Keynesian Model of Income Determination in a Four Sector Economy: Introduction of the Foreign Sector

After studying this topic, you should be able to understand

  • In a four sector economy, the export and Import of goods and services affect the level of aggregate demand.
  • There are two approaches to the determination of the equilibrium Income and output, the aggregate demand—aggregate approach and supply leakages equals injections approach.
  • Transfer payments increase the equilibrium level of income.
  • The four sector equilibrium exists where the C + I + G + XM curve and aggregate supply curve intersect.
  • A zero marginal propensity to import implies a multiplier, which has the same value as the ordinary multiplier.
  • In an open economy, the ...

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