We understand that, as a rule, total spending must equal total income (this was explained in part 4 of the series). But this raises a question. Is it spending that determines income or, instead, income that determines spending?heteconomist
Short & Simple 9 – Spending Determines Income
Peter Cooper
Comment on Sort & Simple 9
ReplyDeletePeter Cooper writes: “We understand that, as a rule, total spending must equal total income.”
This is NOT the case as can be gleaned from the most elementary cases of National Accounting.
(a) Two sectors, initial period C=Yw, consumption expenditures = wage income
https://commons.wikimedia.org/wiki/File:AXEC94.png
(b) Saving C < Yw, consumption expenditures less than wage income, loss -Qm = saving Sm
https://commons.wikimedia.org/wiki/File:AXEC96.png
(c) Dissaving C > Yw, consumption expenditures greater than wage income, profit Qm = dissaving -Sm
https://commons.wikimedia.org/wiki/File:AXEC95.png
Dissaving/saving = change of household sector’s debt means that wage income (total income) and consumption expenditures (total spending) is NEVER equal for the economy as a whole. Peter Cooper is fired because of the lack of elementary logical faculties.*
Egmont Kakarot-Handtke
* You are fired!
https://axecorg.blogspot.de/2017/07/you-are-fired.html