Chapter 19

Keynesian Model of Income Determination in Three-sector and Four-sector Economies

After studying this chapter, 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 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 equals 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 an expansionary ...

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