Reply To: Lecture 19. profits higher than satisfactory level


You are correct in your interpretation. At the equilibrium level of GDP, i.e., when income equals realized expenditure, entrepreneurs earn a “satisfactory rate of profit.” However, if total realized expenditure outstrips income earned during a given period, then the profits that entrepreneurs earn exceeds this base, satisfactory rate and this induces them to expand output until that rate is restored, thereby bringing about equality between income and expenditure (when they expand output they employ more people, thereby expanding income and this process continues until income rises to equal realized expenditure).