Managerial Economics

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 ...