Another Term For Disposable Income Is ________ Income.

What is equilibrium income?

Most simply, the formula for the equilibrium level of income is when aggregate supply (AS) is equal to aggregate demand (AD), where AS = AD. Adding a little complexity, the formula becomes Y = C + I + G, where Y is aggregate income, C is consumption, I is investment expenditure, and G is government expenditure.The equilibrium level of income is when an economy or business has an equal amount of production and market demand. The definition is a bit abstract, so let's use a simple example of a manufacturing business to explain what it actually means.The equilibrium level of income is the point at which a business is able to sell all of the goods it planned to. Pretty simple.The company produces its product to that level, and then sells exactly the same amount. The company's output -- its production -- is equal to the consumer demand to buy the product.That micro example is pretty easy to understand, and we can use that simplicity to expand our understanding to the macroeconomic level. At the national level, gross domestic product, or GDP, represents the business manufacturing its products. All the businesses, consumers, investors, and government spending in the economy represent the consumers buying those products.An economy is said to be at its equilibrium level of income when aggregate supply and aggregate demand are equal. In other words, it is when GDP is equal to total expenditure.

In economic terms, what is "consumption"?

Consumption is typically defined as final purchases by an individual that are not investments of some sort. In other words when you buy food, clothes, a hair, airplane tickets, a car, etc., that's consumption. According to mainstream economists, only the final purchase of goods and services by individuals constitutes consumption, while other types of expenditure — in particular, fixed investment, intermediate consumption and government spending — are placed in separate categories.[1]There are some alternative definitions of consumption:Other economists define consumption much more broadly, as the aggregate of all economic activity that does not entail the design, production and marketing of goods and servicesThe total consumer spending in an economy is generally calculated using the consumption function, a metric devised by John Maynard Keynes, which simply expresses consumption as a function of the aggregate disposable income. This metric essentially defines consumption as the part of disposable income that does not go into saving. But disposable income in turn can be defined in a number of ways - e.g. to include borrowed funds or expenditures from savings.[1]If someone buys a house to live in, that should be defined as consumption. If they buy a house to rent out it to someone else, that should be defined as an investment. Similarly, if they buy a car to drive, that's consumption. If you buy a car to use as a taxi for a business, that could be construed as an investment. In short the reason for the purchase determines whether something is viewed as an investment or as consumption.Here's one other wrinkle. Sometimes economists vary their treatment of consumption depending on how they want to parse data. In the Consumer Price Index (CPI), if someone buys a house the CPI assumes they are actually renting that house, and inputs that amount to compute the index. The term is called owners' equivalent rent.[1] http://en.wikipedia.org/wiki/Con...

Why does increasing money supply result in a short-term decrease in nominal interest rates but a long-term increase in nominal interest rates?

Short termIn short term, money too like any other commodity, because of its increase in supply, the cost of money i.e. interest rates (nominal) decreases.Nominal interest rates are sum total of real interest rates and premium for inflation.nominal interest rates= real interest rates + premium for inflationReal interest rates are the actual cost of money which depends upon demand and supply of money in an economy. So, with increase in money supply, real interest rates decrease and so does nominal interest rates.2. Long termIn long term, because of Increased money supply and availability of cheap credit through banks, more people hold cash for transaction, precaution and speculative purposes, savings etc.Now, as a common shop-keeper interested in maximizing his profits, I know that people have more money so even if i increase the prices of goods and services, they will still buy my products and services.This trend continues throughout the economy and thus results in rising pricing levels termed as inflation.Now, since the premium for inflation has increased, in order to compansate, nominal interest rates too increase in long term.

What is the overall effect of increasing tax and increasing government expenditure by the same proportion?

This has an interesting implication. If an increase in govt. spending is matched by an equal increase in taxes, so that the budget remains balanced, output and national income will rise by the amount of the increase in govt spending. Although it might look impractical for the economy to grow without having deficit budget but it can be proved using simple Keynesian analysis:We all know that people spend a part of their income on consumption, a part is used to pay taxes and save the rest i.e. Total income, Y = C+S+T. Taxes imposed by govt. take a part of the income away from the household and disposable income becomes, Y* = C + S or Y - T.Let us define a variable ‘c’ = marginal propensity to consume, it is the fraction of total additional income that people use for consumption.Now, if total income of economy increases from 0 to Y, total consumption of the economy should be C = C*+ c.Y*, where C*>0 is the minimum consumption level of economy and is a given item, therefore constant.Similarly, suppose planned investment demand of firms = I, also a given item.Planned Govt. expenditure = GTaxes imposed by govt. = TThus aggregate demand for final goods in economy, AD = demand due to planned consumption + planned investment demand + demand on account of govt. expenditure.i.e. AD = C*+ c.Y* + I + G = C*+ I + G + c (Y - T)When the final goods market reaches equilibrium, aggregate demand = output of goods and services in economy = National income/ GDP.i.e. Y = C*+ I + G + c (Y - T)ΔY = ΔG + c ( ΔY - ΔT) since planned investment and minimum consumption level does not change (ΔC* = ΔI = 0)Now coming to your question when ΔG = ΔT, we haveΔY / ΔG = (1-c) / (1-c) = 1This means national income increases by the same amount by which govt. spending increases, and the balanced budget multiplier is unity. For instance if G increases in a fiscal year by 500 the equilibrium income would also increase by 500 in this case.P.S. : It is assumed that the govt. does not impose indirect taxes and subsidies.