This aspect of macroeconomics commences with the study of macroeconomic theories. It begins with a detailed discussion on the theory of national income determination. It deals first with classical theory of output and employment determination. The theory of income determination has been discussed in three models: (i) a simple economy model, i.e. an economy without government and foreign transactions, and the multiplier effect of the change in investment expenditure, (ii) a closed economy model, i.e. an economy without foreign sector and (iii) open economy with including foreign sector.

Here, we begin our study of macroeconomic theories. The study of macroeconomic theories commences, generally, with the theory of national income determination. A formal theory of national income determination was first propounded by John Maynard Keynes in his general theory. So the study of national income determination should begin with the Keynesian theory of national income determination. However, before we proceed, let us have a look at, what is called, the classical theory of output and employment. It should be noted at the outset that the classical economists had not expounded any single, monolithic theory or thought which can be referred to as classical macroeconomics. There is no coherent macroeconomic theory developed by the economists, nor a theory of national income determination. Keynes had developed his theory of income determination in his endeavour to formulate a new theory of employment
in contrast to the classical theory of employment. While classical economists had emphasized the role of supply, Keynes emphasized, in contrast, the role of demand in the determination of output and employment. Briefly speaking, the Keynesian theory of income determination states that the equilibrium level of national income is determined at the level of where aggregate demand for goods and services are equal to their supply. Here we will explain the Keynesian theory of income determination. The Keynesian theory of income determination is generally developed, illustrated graphically and algebraically, in three different models: (i) simple economy model or two sector model, (ii) closed economy model or three sector models, and (iii) open economy model or four sector model.

It is important to note here that throughout the Keynesian theory of income determination, prices are assumed to remain constant even if aggregate demand and aggregate supply change. This assumption applies to all the three models of income determination in the subsequent sections. Here, we also explain income and output determination in a closed economy model-a more realistic model. The closed economy model includes three sectors, viz, household, business and the government sectors. The closed economy model is also known as the three sector model. The income and output determination in a four sector model will also been discussed here. Open economy is conceptually one which has economic transactions with the rest of the world. Open economy model, is, in fact, a realistic model. It is difficult to name an economy of the modern world which has no economic transactions with any other country. It is another thing that only a few countries account for the major proportion of the world trade and in its growth. The world trade has increased at a tremendous pace during the post-Second World War. Foreign trade and transactions of a country affect its macro variables, and thereby the equilibrium level of its national income, especially when foreign transactions account for a significant proportion of its GNP. For example, US being the largest trade partner of  India, the US recession is affecting the Indian economy. Rupee appreciation against dollar has affected leather and textile industry of India. More than 20 lakh workers have lost their jobs. Subprime crisis of US has seriously affected the financial sector of the country. IT industry of India is reported to be adversely affected by the US recession.

Services:-  Product Market Analysis Homework | Product Market Analysis Homework Help | Product Market Analysis Homework Help Services | Live  Product Market Analysis Homework Help | Product Market Analysis Homework Tutors | Online Product Market Analysis Homework Help | Product Market Analysis Tutors | Online Product Market Analysis Tutors | Product Market Analysis Homework Services | Product Market Analysis