Equilibrium national income - Essay Example

Equilibrium of national income affiliation Equilibrium of national income Equilibrium in the national income is achieved when there are stable planned withdraws that are same as the planned injections to the economy. This at the end of the day will lead to a balance between savings, import spending and taxation to a country’s expenditure on export revenue, government spending and investments. Moreover, this should be in line with the planned aggregate supply, which is equal to planned aggregate demand.

However, aggregate expenditure play a much greater role in determining the equilibrium price as compared to the aggregate supply. All the above dynamics keep driving the changes that occur in the national income economy since it always seeks to stabilize eventually.National equilibrium affects the economy in a great deal since it always moves it to its epicentre. Besides the national economy is never at equilibrium but always moving towards equilibrium as it seeks to stabilize with the always changing parameters in the process.

In a classical system, the economy is most of the time thought to adjust itself from time to time. Most economists support the self-adjustment of a national equilibrium, which adjusts itself without or with minimal involvement of the national government. For negative output, wage is suppressed by the lack of demand and at the end of the day lead to a downward readjustment of the prices. Similarly, when there is increased demand of a product, there is released pressure on the wages, which at the end of the day leads to upward adjustments of the prices in most countries (Chao & Yu, 2002).

These readjustments take place freely without the government intervention; the economy is driven by demand and supply policy. However, some of the major problems associated with the view lies with the difficulty on determining the time in which the country will take to achieve that equilibrium.With equal withdrawals and injection the national income level remains constant hence the economy coming up with a stable general equilibrium. A significant change in the economic activity is likely to be observed when there is a change in a country withdraws or injections.

In case there are increased injections, the economy will grow and shrink in the instance where withdrawals are likely to exceed the latter. Economist gives an analogy of bath tub which fills with water more quickly when there is increased volume of water as compared to the amount of water leaving the tab. Concisely for the economy to be general equilibrium, it is important that there is a balance in the total withdrawals and the total injections irrespective of the confounding factors. The national equilibrium is important in determining a countrys status economically.

It is a major determinant of economic crisis in the country, hence pays a great role in predetermining the general condition of the country to enhance prior planning and evading probable catastrophes. Furthermore, a stable economy is important since it encourages investors to start various projects in a country, which at the end of the day leads to the development of a more economically stable country.General equilibrium diagram Reference listChao, C, & Yu, E 2002, Public Sector Pricing, Capital Mobility and National Income: A Two– Sector General–Equilibrium Analysis, Pacific Economic Review, 7, 3, pp.

555-571, Business Source Premier, EBSCOhost, viewed 19 May 2015.