Aggregate Consistency Conditions
Categories: Econ, Company Management
When you're setting up the basic conditions of an economic model (something we know you do with most of your spare time), you have to include the aggregate consistency conditions. These are the basic rules of the game. But they are so basic that they go beyond "rules" to become "oh, wait, we have to say that kind of stuff out loud."
In baseball, an aggregate consistency condition would be something like "the total number of hits given up by pitchers in a game must equal the total number of hits recorded by batters." Really basic stuff, but necessary when you're trying to get to the bottom of something as complicated as the economy.
So the big three aggregate consistency conditions that come up in econ are as follows:
1) Total production equals total consumption...in other words: someone makes it; someone uses it.
2) Total dollars lent out equals total dollars borrowed.
3) Total amount of currency held by market participants equals the total amount of currency put into the system.
Seems pretty basic. But the first rule of Euclid's geometry is "things equal to the same thing are equal to each other." From that, you can eventually build the Parthenon.
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Finance: What is a Consumption Tax?10 Views
Finance a la shmoop, what is a consumption tax? Ah consumption wasn't that a [Woman coughs up a dolphin]
disease in the 17th century like you know your lungs filled up with water, [Woman banging her chest]
couldn't be a tax on that... Hmm, like how would they ever collect. Well in fact a
consumption tax in finance land is about taxing what you consume yeah duh so
continuing from the 17th century and then 18th centuries remember that Boston
Tea Party thing, yeah that thing. Well the Brits wanted to tax American tea like a [Bags of tea leaves]
farthing per bushel or whatever the currency and measures were back then but
that was a tax per unit or per element of consumption, yeah consumption tax. Gas [Someone pouring tea out of a pot]
tax, that's a consumption tax, gas is 3 bucks [Someone filling up their car]
a gallon or so and the tax is per gallon something like 80 cents give or take in
a red state and more than that in the blue so the more gas you consume the [States shown on the map]
more tax you pay. All right consumption tax, real estate well it's usually taxed [Guy pointing at a list of consumption taxes on a whiteboard]
based on the market value of the place you just bought, buy a more expensive
house and well you'll pay a higher amount of tax so what's a non
consumption tax if all those are consumption taxes. Well income tax for
one you're not consuming anything your yearly tax bill isn't based on how much [Cup of tea is knocked out by yearly tax bill]
stuff you buy but how much dough you made. Well same with a payroll tax [Money being counted for the tax bill]
payroll tax is based on how much money someone makes at a job and the
conditions of their employment again not about the consumption of any goods or [Guy eating a burger]
service you know other than all your free time... All right well the estate tax
is another example unless Congress passes a bill the taxes are zombiefied
brethren based on the amount of brains they consume all the estate tax is based [Girl counting her money]
on income sort of definitions of income are squishy.. rather than consumption so
yeah that's kind of an iffy one. All right then again those zombies have been
dodging the IRS for a while now and you know we got to make them pay their fair [Guy in a suit looks scared of the zombies]
share let's say they foot the tax bill for the next being how about that, no but [The guy in a suit is chased away]
that's not gonna work everyone knows you know the zombies well they're a bunch of [Guy on the floor with his head cracked open]
deadbeats