1 / 5

Comparative Static Analysis of the Keynesian Model

Comparative Static Analysis of the Keynesian Model. Macroeconomics I ECON 309 -- Cunningham. Simple IS-LM Analysis.

oriole
Download Presentation

Comparative Static Analysis of the Keynesian Model

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript

  1. Comparative Static Analysisof the Keynesian Model Macroeconomics I ECON 309 -- Cunningham

  2. Simple IS-LM Analysis Two equations, two endogenous variables (Y and r), and one exogenous variable G. Real money supply (M/ P) is taken as constant since nominal money (M) and (P) are exogenous as well. Take total differentials: Write in matrix form:

  3. Simple IS-LM, Continued Applying Cramer’s rule for solution: So, in a Keynesian economy, under the conditions given, cet. par. (i.e., prices), an increase in government spending increases GDP and interest rates. Because, by assumption, the following hold:

  4. Extension What if prices are flexible? To examine this, we must include the labor market and real wage computation. Define the following variable as a convenience:

  5. Extension (Continued) Similarly: (Note that the denominator turns out to be positive.)

More Related