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Equilibrium GDP, Macroeconomics Video Lecture | Macro Economics - B Com
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FAQs on Equilibrium GDP, Macroeconomics Video Lecture - Macro Economics - B Com
| 1. What is equilibrium GDP in macroeconomics? |  |
Ans. Equilibrium GDP refers to the level of gross domestic product (GDP) at which aggregate demand (total spending) in the economy equals aggregate supply (total output) in the economy. It represents a state of balance in the economy where there is no tendency for GDP to either increase or decrease.
| 2. How is equilibrium GDP determined in macroeconomics? | |
Ans. Equilibrium GDP is determined by the intersection of aggregate demand (AD) and aggregate supply (AS) curves. At this point, the quantity of goods and services demanded by households, businesses, and the government is equal to the quantity of goods and services supplied by firms. This equilibrium level of GDP can be measured using various methods, including the expenditure approach, income approach, or production approach.
| 3. What factors can cause a shift in equilibrium GDP? | |
Ans. Several factors can cause a shift in equilibrium GDP, including changes in consumption, investment, government spending, or net exports. For example, an increase in consumer confidence and spending would shift the aggregate demand curve to the right, leading to a higher equilibrium GDP. Similarly, an increase in government spending or a decrease in taxes can also shift the aggregate demand curve and impact the equilibrium GDP.
| 4. Can equilibrium GDP be below full employment GDP? | |
Ans. Yes, equilibrium GDP can be below full employment GDP. Full employment GDP refers to the level of output where all available resources, including labor, are fully utilized. If the equilibrium GDP is below this level, it indicates that there is an economic downturn or a recession, with unemployment prevailing in the economy.
| 5. How does the government intervene to achieve equilibrium GDP? | |
Ans. The government can intervene in the economy through fiscal and monetary policies to achieve equilibrium GDP. Fiscal policy involves changes in government spending and taxation to influence aggregate demand. For example, during a recession, the government can increase spending or decrease taxes to stimulate demand and raise equilibrium GDP. Monetary policy, on the other hand, involves actions by the central bank to control the money supply and interest rates, which can also impact aggregate demand and equilibrium GDP.
Text Transcript from Video
g'day guys now we're going to go into
something that was brought up in
previous videos which is that GDP does
tend to be at this equilibrium where
injections equal withdrawals and
equivalently you've got the money coming
into firms being equal to the money
going out from firms so just to
reiterate we've got money going out from
firms in the form of income which we
know either gets spent by a consumption
or it gets saved or it gets taken out as
tax so savings and taxes are withdrawals
so we can say that income just equals
consumption plus withdrawals we then
have the money coming in to firms which
we can call the aggregate expenditure
and that consists of consumption minus
imports plus investments government
spending and exports of course we can
rearrange the minus imports bring it to
the back here and then we can just put
this together and say this is net
exports and we can say that's a single
injection so a long way of government
spending an investment then we've got
that aggregate expenditure is just
consumption plus injections so if income
is equal to aggregate expenditure
meaning the flows out of firms equals
the flows into firms then this is
equivalently saying that injections
equal withdraw
you
something that was brought up in
previous videos which is that GDP does
tend to be at this equilibrium where
injections equal withdrawals and
equivalently you've got the money coming
into firms being equal to the money
going out from firms so just to
reiterate we've got money going out from
firms in the form of income which we
know either gets spent by a consumption
or it gets saved or it gets taken out as
tax so savings and taxes are withdrawals
so we can say that income just equals
consumption plus withdrawals we then
have the money coming in to firms which
we can call the aggregate expenditure
and that consists of consumption minus
imports plus investments government
spending and exports of course we can
rearrange the minus imports bring it to
the back here and then we can just put
this together and say this is net
exports and we can say that's a single
injection so a long way of government
spending an investment then we've got
that aggregate expenditure is just
consumption plus injections so if income
is equal to aggregate expenditure
meaning the flows out of firms equals
the flows into firms then this is
equivalently saying that injections
equal withdraw
you
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Jan 16, 2025
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