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Economics (MindTap Course List)

13th Edition
Roger A. Arnold
ISBN: 9781337617383

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BuyFindarrow_forward

Economics (MindTap Course List)

13th Edition
Roger A. Arnold
ISBN: 9781337617383
Textbook Problem

Identify the three states of the economy in terms of TE and TP.

To determine

Three states of the economy according to the TP-TE model.

Explanation

The expenditures are of three types in the closed economy, namely the consumption expenditure, investment expenditure, and the government purchases. These three expenditures in the economy are the expenditures that constitute the total expenditure of the economy. Thus, the total expenditure is the vertical summation of these three different expenditures of the economy.

The production can take place in three different sectors, such as households, firms, and the government sectors. Thus, similar to the total expenditure, the total product is the vertical summation of the individual productions of the three different sectors of production in the economy.

According to the terms of the TP and TE, there are three different states of economy and they are as follows:

a) TE < TP: The first state can be explained as the situation where the total expenditure is lower than the total production...

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