Chapter 21 - The national income

Abstract

This chapter provides an overview of the national income. There are three groups of economic agent who contribute to expenditure in a closed economy. There are households, producers, and the government. The supply of money, let us suppose, is a unique, readily definable variable controlled by the government and pre-set at a particular value in money terms. The demand for money varies positively with the price level and with income. But the demand for money varies negatively with the rates of interest available on alternative assets. The higher the yield available on building society deposits or government bonds, for instance, the stronger the incentive would be to cut down on balances of relatively unremunerative money. The demand for money and supply of money are always equal as a result of sufficient flexibility of interest rates or other variables; and, lastly, there is only one kind of asset in addition to money with a unique rate of interest upon it. In the Keynesian view, aggregate supply is rather elastic and typically a good deal more elastic to the price level than aggregate demand unaccompanied by a sufficient rise in labor productivity. Hence, the Keynesian policy prescriptions fighting inflation with incomes policy, constraining the growth of money wage rates, sustaining the growth of output by expansionary policies of demand management.