Macroeconomía. Episodio 1x10. THE INCOME-EXPENDITURE MODEL: THE PUBLIC SECTOR AND EQUILIBRIUM IN A CLOSED ECONOMY . 1w2o5l

In a closed (three-sector) economy, in addition to households and companies, the public sector and financial agents also participate. Thus, the disposable income of households (YD) is no longer equivalent to the income of the economy (Y). Basically, the introduction of the public sector in the macroeconomic model affects DA through three components: public expenditure (G), public transfers (TR) and public revenues (mainly tax revenues). The determination of these three components is known as fiscal policy. If we simplify, we can say that fiscal policy consists of the determination by the public sector (through legal procedures) of the value of these three variables. r5q3u