First, let me delve into a little highbrow theory.
|Figure 1: The Keynesian Cross|
Figure 1 is a picture that goes by the name of the Keynesian cross. On the horizontal axis is income; the value of all wages, rents and profits earned from producing goods and services in a given year. On the vertical axis is planned expenditure; the value of all spending on goods and services produced in the economy in a given year. Since this is a closed economy, all expenditure is allocated to one of three categories; expenditure on consumption goods, expenditure on investment goods and government purchases. Since every dollar spent must generate income for someone; in a Keynesian equilibrium, income must equal planned expenditure.