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 ...