Journal Article

The Concept of Income in a General Equilibrium

J. A. Sefton and M. R. Weale

in The Review of Economic Studies

Published on behalf of Review of Economic Studies Ltd

Volume 73, issue 1, pages 219-249
Published in print January 2006 | ISSN: 0034-6527
Published online January 2006 | e-ISSN: 1467-937X | DOI:

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  • General Aggregative Models
  • General Equilibrium and Disequilibrium


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This paper derives a concept of aggregate real income for a competitive economy in general equilibrium consisting of heterogeneous infinitely lived people and relates it to current and future consumption possibilities. An important characteristic of our measure of income, which we call Real Income, is that deflation is carried out using a consumption deflator rather than any price index of output. We suggest that it may be inappropriate to regard capital gains as income. We also present a coherent treatment of the effects of changes to the terms of trade on Real Income and explain the implications of this for resource-exporting economies.

Keywords: D50; E13

Journal Article.  15175 words.  Illustrated.

Subjects: General Aggregative Models ; General Equilibrium and Disequilibrium