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Module 2 Introduction

Expenditure is often different from income for individuals, but for the economy as a whole, aggregate income is always identical to aggregate expenditure. This has important implications for the functioning of the macroeconomy and the way policies affect it. The income-expenditure identity is also fundamental to the ways various part of the economy with different processes interact with each other. For example, it sheds a lot of light on the formation of the trade deficit and its connection with budget deficit and private savings.

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