The Household Sector in the Simple Model

Abstract

The simple national income model developed in Chapters 3–5 contains two centralized decision-making units participating in four markets. The household sector, discussed in the present chapter, purchases commodities and equity shares from the nonfinancial business sector. The business sector presented in Chapter 4, buys labor services from the households. Currency, the only type of money in this simple framework, is exchanged in all three of the commodity, equity, and labor markets. Consequently these three markets taken together simultaneously constitute a market for currency. Chapter 5 combines the household and business sectors into a simple model of national income determination with the prices of labor, commodities, and equity, set by the business sector.