1. Determination of National Income EDWARD BAHAW - Economic Principles and Their Application to Business (ABE) Chapter #10, 11

2. PRODUCERS Y = $40M CONSUMERS S = $6M S T = $4M M = $10M Factors of Production Goods and Services X = $7M G = $5M I = $8M C D = $20M Circular Flow of Income EDWARD BAHAW - Economic Principles and Their Application to Business (ABE)

5. Injections and Withdrawals Injections Withdrawals CIRCULAR FLOW OF INCOME EDWARD BAHAW - Economic Principles and Their Application to Business (ABE)

6. Injections (J) and Withdrawals (W) C D = C T - M J = I + G + X W = S + T + M AE = C T + I + G + X – M EDWARD BAHAW - Economic Principles and Their Application to Business (ABE) Y C T I G X M S T C D J W AE 0 20 25 35 10 10 -20 0 10 70 -10 80 100 90 25 35 10 20 0 10 200 160 25 35 10 30 20 20 300 230 25 35 10 40 40 30 400 300 25 35 10 50 60 40

7. Equilibrium Level of National Income – Injections and Withdrawals Y W/J 200 W = S+T+M E J= X + G + I 70 EDWARD BAHAW - Economic Principles and Their Application to Business (ABE)

8. Aggregate Expenditure Y AE 200 80 AE 1 100 300 140 200 260 EDWARD BAHAW - Economic Principles and Their Application to Business (ABE)

9. Equilibrium Level of National Income – 45  Diagram Y AE E 1 45  200 Y=AE AE 1 200 EDWARD BAHAW - Economic Principles and Their Application to Business (ABE)

10. National Income Equilibrium and Disequilibrium EDWARD BAHAW - Economic Principles and Their Application to Business (ABE) Condition W = J or Y = E W > J or E < Y J > W or E > Y Classification Equilibrium Disequilibrium Disequilibrium Effect Income is Stable Income Contracts Income Expands

13. An Increase in Aggregate Expenditure EDWARD BAHAW - Economic Principles and Their Application to Business (ABE) Y AE E 1 45  200 Y=E 225 E 2 120 130 AE 2 AE 1

14. An Increase in Injections EDWARD BAHAW - Economic Principles and Their Application to Business (ABE) Y AE 200 W 225 E 1 E 2 J 1 = X + I + G 1 J 2 = X + I + G 2 80 70

19. Inflationary Gap EDWARD BAHAW - Economic Principles and Their Application to Business (ABE) Y E X Y E AE 1 45  Y F Y=E Y E1 FE Output Gap

20. Deflationary Gap Y E F G E AE 2 45  Y F Y=E Y E2 FE Output Gap EDWARD BAHAW - Economic Principles and Their Application to Business (ABE)