Difference between Goods Market Clearing and Resources Constraint

Hello everyone,

I’m currently reading about DSGE models and I’m little bit confused about the difference between the resources constraint and the goods market clearing condition. Are they the same? If not, how is each one of them obtained? To the best of my knowledge the resources constraint is obtained through the aggregation of the budget constraints of households and entrepreneurs while the goods market clearing condition can be expressed as the sum of consumption and investment in addition to adjustement costs in case they exist (I.e., Y = C + I + ADJ). However, how is the latter derived? In some cases they are equal while in others they are not.

Thanks in advance.

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Conceptually, market clearing is an equilibrium condition you impose, i.e. prices adjust to balance supply and demand. The resource constraint is a physical constraint that the economy cannot use more resources than are available. You can usually combine the budget constraints with resulting demand and supply conditions to end up again with the resource constraint. After all, with non-satiation, resources will be fully exhausted and demanded.