[djmiller15]

I am making my way through the lectures and I have really enjoyed them. However, I am having some difficulty understanding what you mean when you talk about consumption expenditure below income as producing higher than satisfactory profit. If company is producing a high profit how is it that it is not satisfied with the profit level? Or are you saying that because the profits are so high the company will be encouraged to produce more? And then this production lowers prices? I am a bit confused. I appreciate any clarification.

[gpm2313]

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).

[djmiller15]

Ok i understand, thanks for helping me clear that up!

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