Keynesian theory/Tutorials: Difference between revisions

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==The Keynesian model==
Let:-<br>
&nbsp;&nbsp;&nbsp;&nbsp;M&nbsp;=&nbsp;the money supply<br>
&nbsp;&nbsp;&nbsp;&nbsp;P&nbsp;=&nbsp;the price level<br>
&nbsp;&nbsp;&nbsp;&nbsp;y&nbsp;=&nbsp;the national income<br>
&nbsp;&nbsp;&nbsp;&nbsp; l&nbsp;=&nbsp;the income elasticity of demand for money<br>
&nbsp;&nbsp;&nbsp;&nbsp; L&nbsp;=&nbsp;the interest elasticity of demand for money<br>
&nbsp;&nbsp;&nbsp;&nbsp;s&nbsp;=&nbsp; savings and S&nbsp;=&nbsp; the marginal propensity to save<br>
&nbsp;&nbsp;&nbsp;&nbsp;i&nbsp;=&nbsp; savings and I&nbsp;=&nbsp; the interest elasticity of investment<br>
&nbsp;&nbsp;&nbsp;&nbsp;n&nbsp;=&nbsp;the numbers employed in the labour market<br>
&nbsp;&nbsp;&nbsp;&nbsp;Y&nbsp;=&nbsp; labour productivity<br>
&nbsp;&nbsp;&nbsp;&nbsp;W&nbsp;=&nbsp;the money wage<br>
then:-<br>
The demand for money
:::::: M&nbsp;=&nbsp;lPy&nbsp;+&nbsp;L(r) &nbsp;&nbsp;------------------------&nbsp;(1)
The consumption function
::::::  s&nbsp;=&nbsp;S(y)&nbsp;&nbsp;&nbsp;--------------------------------&nbsp;(2)
The production function
::::::y&nbsp;=&nbsp;Y(n)&nbsp;&nbsp;----------------------------------&nbsp;(3)
The labour market
::::::dy/dn&nbsp;=&nbsp;W/P&nbsp;&nbsp;-----------------------------&nbsp;(4)
Investment
::::::i&nbsp;=&nbsp;I(r)&nbsp;&nbsp;-------------------------------------&nbsp;(5)
Savings
::::::s&nbsp;=&nbsp;i&nbsp;&nbsp;----------------------------------------&nbsp;(6)
Sticky wages
::::::W&nbsp;=W<sub>o,</sub>&nbsp;&nbsp;------------------------------------&nbsp;(7)
- and the "multiplier" is 1/S  - the reciprocal of the marginal propensity to save

Latest revision as of 06:22, 21 November 2009

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https://en.citizendium.org/wiki/index.php?title=Keynesian_theory/Tutorials&printable=yes
Tutorials relating to the topic of Keynesian theory.

The Keynesian model

Let:-
    M = the money supply
    P = the price level
    y = the national income
     l = the income elasticity of demand for money
     L = the interest elasticity of demand for money
    s =  savings and S =  the marginal propensity to save
    i =  savings and I =  the interest elasticity of investment
    n = the numbers employed in the labour market
    Y =  labour productivity
    W = the money wage


then:-

The demand for money

M = lPy + L(r)   ------------------------ (1)


The consumption function

s = S(y)   -------------------------------- (2)


The production function

y = Y(n)  ---------------------------------- (3)


The labour market

dy/dn = W/P  ----------------------------- (4)


Investment

i = I(r)  ------------------------------------- (5)


Savings

s = i  ---------------------------------------- (6)


Sticky wages

W =Wo,  ------------------------------------ (7)


- and the "multiplier" is 1/S - the reciprocal of the marginal propensity to save

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