We will initially ignore international trade, taxes, depreciation, transfer payments, government expenditures, and undistributed corporate profits.[1] This simplifying assumption blurs distinctions among GDP, NDP, and disposable income, permitting use of the term income (Y) to refer to all three. The values of net income and output are also equal, with profit acting as a balancing item.

 

Labor is required to produce output which, if sold, translates into National Income and maintains jobs. Thus, employment rises if National Income grows. However, if output is unsalable at prices that cover costs, some firms will cut back or even shut down and some workers will lose their jobs. Thus, more labor is idle as an economy becomes stagnant, while economic growth usually reduces unemployment rates. Aggregate Spending and National Output thus interact to yield a macroequilibrium.

 

---