Equilibrium Economy: Spending Rises In The Economy

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Equilibrium Economy
In economics in relation to income and expenditure, a state of equilibrium is where the total income is equal to the total amount that one spends. In a graph, an equilibrium is established where the two aspects of economy that is expense and income intersects hence determining a balance in these key aspects. One should be determined to spend as much as they earn but not spend more than they earn since this may cause an imbalance in the economy which may prove hazardous to a person or a nation as a whole. An economy is considered good when at equilibrium hence this is the state that a nation should strive for.
An increase in prices will ultimately lead to a decrease in spending since one will have to use more of the usual hence cut on expenditure. Overall increase in the price of goods and services is known as inflation. Inflation is measured in two ways that is; Gross Domestic Product deflator (GDP) which is an indicator of the general inflation in the economy, the Consumer Price Index deflator (CPI) which points to the increase in the consumer purchase price and the Personal Consumption Expenditure (PCE) which defines the consumption expense at personal levels CITATION Wel80 \l 1033 (Wells). A government would spend more to curb the crisis of rising prices since the employees will demand more to enable them catch up with the rising prices.
The processes involved in the overall spending due to a rise in prices occur in different steps. An increase in prices will lead to a corresponding decrease in expenditure which then leads to a higher government spending then consequently gross do...