Macroeconomics: Theory and Policy

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 + X – M 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 ...