National Income Determination: The four-sector Economy

Abstract

In the four-sector model of income determination we introduce the government sector and the international sector. In such an economy the equilibrium level of income occurs when planned expenditure equals planned output and in notation we can write

$$Y = C + I + G + X - M$$

where Y = national income, C = consumption expenditure, G = direct government expenditure on goods and services, X = exports, that is, foreign expenditure on UK output, M = imports, that is, UK expenditure on foreign output.