FREE IGNOU BECC-133 SOLVED ASSIGNMENT 2023-24
9. Equilibrium Output in an Open Economy: In an open economy, equilibrium output is determined by the intersection of the aggregate demand and aggregate supply curves. Aggregate demand includes consumption, investment, government spending, and net exports. Equilibrium occurs when aggregate demand equals aggregate supply, leading to no unintended changes in inventories.
In terms of the expenditure approach, equilibrium output (Y) is determined by the following equation:
Y = C + I + G + (X – M)
Where: C = Consumption I = Investment G = Government Spending X = Exports M = Imports
Changes in any of these components will cause a shift in aggregate demand, which in turn affects equilibrium output. For example, an increase in exports would increase aggregate demand, leading to a higher equilibrium output.
