Withdrawals and Injections

1. Withdrawals function

2. Injections function

1) Withdrawals function

W=S+T+M

Components of W	Function	mp and ap to…	Non-income determinants
1. S	as Y­ S­ before p.A S<0 (dissavings) at p.A S=0 (ppl save all earnings) after A S>0	mps=ΔS/ΔY (marg prop to save) aps=S/Y (prop of Y saved)	1)wealth and distribution of income, esp. if Y is redistributed from rich to poor S­ (poor start saving) 2)level of taxes, T­ the¯S 3)interest rate, r­ the ­S 4)expectations of future prices; the exp prices, ¯S (start to consume>now)
2.T		mpt= ΔT/ΔY (prop of Y payed in taxes) apt=T/Y (prop of Y paid in taxes)	1)tax rate tax rates, tax contribution 2)size of underground economy und ec,tax contribution
3. M		mpm=ΔM/ΔY (proportion of increase in Y that goes abroad) apm=M/Y (prop of Y that goes abroad)	1)relative prices; the ­ prices abroad the ¯M 2)relative quality of g&s; the ­quality abroad ­M 3)relative interest rate; the ­r abroad the ­M of financial services 4)exchange rate; ­xr the more profit. For foreigners to import,so ­M 5)tastes; habits to buy imp.g&s, so M 6)total consumption; the ­expen. on con-n, ­expen. on con. of M resources (CM)
4. W		mpw= ΔW/ΔY (proport of increase of Y that is withdrawn from economy) mpw=mps+mpt+mpm apw=W/Y	Combination of all determinants above

2) Injections and their determinants

J=I+G+X

Main Determinants

X - Export	depends on relative prices, qualities (look M)
G- Gnt expenditure	dif. to consider, depends on past (current) gnt policy, random events,no strong determinants of gnt policy
I- Investement	interest rate (r) (rI) excess capacity (­ level of excess capacity & stocks I¯; ­size of stocks®I¯) expected rate of net profit (direct) cost of capital goods; ­ prices on capital goods & ­maintenance cost®¯exp. profits®I¯ technological progress; ­efficiency of eq-nt®­ exp. profits®I ­ taxes expectation (inverse) the better expected situation in the country®­exp. profits ®I­

Determination of National Income

1. Equilibrium level of Y

2. The multiplier effect

3. The multiplier coefficient

1) Equilibrium level of Y - is a situation where there is no tendency for Δ in Y – the situation that can persist.

Factors of δ ,Conditions of Equilibrium

Leakage – injections approach when W=J; (S=I)-as economy is closed	Aggregate expenditure – national output approach Y=E=AD (Y=C+I)-no G,X,M
Y1<Y2J>WI>SG>TX>Mbusiness activity is encouraged (low tax, high G)  encourage production of g&s Y­ the ­W becomeuntil W=J, equilibrium is restored. Only when J=W®no tendency for Y to Δ Y2 bus activity 	E=AD=Cd+J (exog. straight line). If Y1>YeY>E (produced goods>demand for them), a part of products is not sold, firms are discouraged to produce more®Y¯. Only when E=Y there is no tendency for Y to Δ

Remarks:

W=J; let’s add Cd ® Cd + W = J + Cd ® Y=AD=E

Equilibrium level of Y doesn’t mean that Y is unchanged, because any Δ in W, J, E cause Δ in equilibrium level of Y.