Macroeconomics

‭When‬‭the‬‭economy‬‭is‬ ‭at‬‭equilibrium‬‭(balanced),‬‭total‬‭leakages‬‭are‬‭equal‬‭to‬‭total‬‭injections‬ ‭,‬‭meaning‬ ‭that the total outflows or money are equal to the total inflows of money into the economy.‬ ‭Since‬‭equilibrium‬‭is‬‭where‬ ‭leakages‬‭=‬‭injections‬ ‭,‬‭then‬‭this‬‭is‬‭achieved‬‭in‬‭an‬ ‭expanded‬‭circular‬‭flow‬‭of‬ ‭income‬ ‭where:‬ ‭Savings + taxes + imports‬‭=‬‭investments + government‬‭spending + exports‬ ‭However,‬‭since‬‭the‬‭government‬‭and‬‭foreign‬‭sectors‬‭do‬‭not‬‭exist‬‭in‬‭the‬‭simplifed‬‭version‬‭of‬‭the‬‭circular‬ ‭flow, then equilibrium there is achieved where:‬ ‭Saving = investments‬ ‭Checkpoint Quiz 1:‬ ‭An open economy (i.e., involved in international trade), recorded the following data at equilibrium:‬ ‭●‬ ‭Imports = $2 bn‬ ‭●‬ ‭Savings = $1 bn‬ ‭●‬ ‭Investments = $3 bn‬ ‭●‬ ‭Government spending = $2 bn‬ ‭●‬ ‭Exports = $1 bn‬ ‭Calculate the value of taxes in this economy.‬ ‭(Checkpoint answers are located at the end of the chapter under the review question answers.)‬

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