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In: Economics

If injections exceed withdrawals, will GDP go on rising indefinitely, or will a new equilibrium be...

If injections exceed withdrawals, will GDP go on rising indefinitely, or will a new equilibrium be reached? If so, explain how

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Expert Solution

When total injections equal total withdrawals, the level of national income will remain constant, and the economy will be in general equilibrium. An economy will grow if the value of injections is greater than the value of withdrawals, or shrink if the value of withdrawals is greater than injections.

When total injections equal total withdrawals, the level of national income will remain constant, and the economy will be in general equilibrium.

The level of economic activity will change following a change in either injections or withdrawals. An economy will grow if the value of injections is greater than the value of withdrawals, or shrink if the value of withdrawals is greater than injections.

Economists often say that the economy is like a bathtub filling up – the level of the water in the bath will rise when the volume of water coming in increases relative to water going out.

For an economy to be in general equilibrium it is only necessary that:

Total injections = total withdrawals

Rahul Sunny answered 8 months ago
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