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NATIONAL INCOME AND GROSS DOMESTIC PRODUCT: National income (NI) is the total income earned by the citizens of the national economy resulting from their ownership of resources used in the production of final goods and services during a given period of time, usually one year. Gross domestic product (GDP) is the total market value of all final goods and services produced within the political boundaries of an economy during a given period of time, usually a year. Although national income is generated by the production of gross domestic product, the value of production does not entirely result in earned income. In other words, national income can be derived from gross domestic product after a few adjustments.

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INTERCEPT, GOVERNMENT PURCHASES LINE:

The intercept of the government purchases line indicates autonomous government purchases, government purchases that do not depend on the level of income or production. This can be thought of as government purchases that the government sector undertakes regardless of the state of the economy. Autonomous government purchases are affected by the government purchases determinants, which cause a change in the intercept and a shift of the government purchases line.
Government Purchases Line
Government Purchases Line
The government purchases line shows the relation between government purchases undertaken by the government sector and aggregate income or production. The income and production measures commonly used are national income and gross domestic product.

A representative government purchases line is presented in the exhibit to the right. This red line, labeled G in the exhibit, is positively sloped, indicating that greater levels of income generate greater government purchases by the government sector. This positive relation indicates that the government sector, especially state and local governments, is inclined to use increasing tax revenue generated by an expanding economy for government purchases.

The government purchases line graphically illustrates the government purchases-income relation for the government sector, which is then added to the consumption line to derive the aggregate expenditures line used in Keynesian economics to identify equilibrium income and production.

The intercept of the government purchases line indicates the intersection point between the government purchases line and the vertical government purchases axis. The government purchases line intersects the vertical axis at a value of $2 trillion. Theoretically, this is a minimum "baseline" level of government purchases, the amount of government purchases undertaken if aggregate income falls to zero. This intersection indicates autonomous government purchases--government purchases unrelated to income. Click the [Intercept] button to illustrate.

Autonomous government purchases are government purchases by the government sector that are unrelated to and unaffected by the level of income or production. This is best indicated by a zero level of income. While individual government entities might come face-to-face with autonomous government purchases, as their own slice of aggregate tax revenue drops to zero, for the aggregate economy autonomous government purchases are mostly an unlikely theoretical extrapolation.

However, from an analytical perspective, the intercept of the government purchases line is affected by the government purchases determinants. These are ceteris paribus factors other than income that affect government purchases, but which are held constant when the government purchases line is constructed. Any change in these determinants cause the government purchases line to shift, which necessarily means a new intercept and a new level of autonomous government purchases.

<= INTERCEPT, CONSUMPTION LINEINTERCEPT, INVESTMENT LINE =>


Recommended Citation:

INTERCEPT, GOVERNMENT PURCHASES LINE, AmosWEB Encyclonomic WEB*pedia, http://www.AmosWEB.com, AmosWEB LLC, 2000-2018. [Accessed: September 22, 2018].


Check Out These Related Terms...

     | government purchases line | slope, government purchases line | consumption line | intercept, consumption line | intercept, investment line | intercept, net exports line | induced government purchases | autonomous government purchases | marginal propensity for government purchases |


Or For A Little Background...

     | government purchases | government expenditures | government consumption expenditures and gross investment | Keynesian economics | macroeconomics | government sector | national income | gross domestic product | determinants |


And For Further Study...

     | induced expenditures | autonomous expenditures | aggregate expenditures | aggregate expenditures line | derivation, consumption line | government purchases determinants | Keynesian model | Keynesian equilibrium | injections | injections-leakages model | aggregate demand | paradox of thrift | fiscal policy | multiplier |


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