- 11 Sep 2020 19:22
#15119021
First of all, those are all flow variables, not stock variables. It's also worth recalling the definition of GDP (Y):
"the monetary value of all finished goods and services made within a country during a specific period."
If G increases, the effect depends on where Y stands relative to its potential. If there is an output gap, Y will simply increase with G. What is also possible is that inventory investment will decrease (goods that are not consumed are counted as inventory investment). If there is no gap, the price level will rise and increase Y, but not in real terms (other variables will be smaller relative go G than before, commonly called crowding out). Growth of the capital stock, population or productivity increases potential Y.
SueDeNîmes wrote:What does "next period" mean and how does I increase without depleting S unless either G or (X-M) change positively?
Err yeah, but it can't increase the money supply without either net govt spending or a trade surplus. If the population increases and the money supply doesn't increase through either G or X-M, households and firms must either cut spending or dis-save, i.e. either spend savings or go into debt.
First of all, those are all flow variables, not stock variables. It's also worth recalling the definition of GDP (Y):
"the monetary value of all finished goods and services made within a country during a specific period."
If G increases, the effect depends on where Y stands relative to its potential. If there is an output gap, Y will simply increase with G. What is also possible is that inventory investment will decrease (goods that are not consumed are counted as inventory investment). If there is no gap, the price level will rise and increase Y, but not in real terms (other variables will be smaller relative go G than before, commonly called crowding out). Growth of the capital stock, population or productivity increases potential Y.