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@article{205907,
        author = {Prof. Tapan Kumar Shandilya},
        title = {NATIONAL INCOME DETERMINATION IN A THREE SECTOR CLOSED ECONOMY},
        journal = {International Journal of Innovative Research in Technology},
        year = {2026},
        volume = {13},
        number = {1},
        pages = {9262-9277},
        issn = {2349-6002},
        url = {https://ijirt.org/article?manuscript=205907},
        abstract = {This article provides a comprehensive analysis of national income determination. In a three-sector closed economy that includes households, firms, and the government. The study examines how fiscal policy instruments—specifically government expenditure and taxation—influence the equilibrium level of Gross Domestic Product (GDP). The article systematically develops the theoretical framework by introducing three essential functions: the government expenditure function, the tax function, and the budget surplus function. Two interrelated approaches for determining equilibrium GDP are explored: the Aggregate Expenditure-Aggregate Output approach and the Saving-Investment approach. The analysis demonstrates that equilibrium is achieved when aggregate expenditure equals aggregate output or when total leakages equal total injections. The study further investigates the impact of changes in government spending and tax rates on equilibrium GDP, deriving and explaining three critical multipliers: the government expenditure multiplier, the tax multiplier, and the balanced budget multiplier. The findings reveal that the balanced budget multiplier is always unity, while the tax multiplier is one less in absolute value than the government expenditure multiplier. This article contributes to the understanding of fiscal policy effectiveness and provides a foundation for policy analysis in macroeconomics.
This article is organized as follows. Section 1 provides an introduction; Section 2 presents a review of the relevant literature on national income determination and fiscal policy. Section 3 outlines the theoretical framework, including the key assumptions and functional relationships. Section 4 examines fiscal policy and the role of government in detail. Section 5 develops the three essential functions: government expenditure, tax, and budget surplus functions. Section 6 presents the equilibrium GDP determination using both the AE-Y and S-I approaches. Section 7 analyzes the impact of changes in government spending and tax rates. Section 8 derives and explains the three multipliers. Section 9 concludes with key findings and policy implications.},
        keywords = {National Income Determination, Three-Sector Economy, Fiscal Policy, Government Expenditure, Taxation, Multipliers, Equilibrium GDP, Aggregate Expenditure, Saving-Investment Approach, Balanced Budget Multiplier JEL Classification: E12, E62, H30, H50},
        month = {June},
        }