The Keynesian Model - Econ 1021 FALL 2009...

Info icon This preview shows pages 1–5. Sign up to view the full content.

View Full Document Right Arrow Icon
Econ 1021 FALL 2009 The Keynesian model of the macroeconomy Outline: 1. Introduction 2. The labor market 3. Characterizing AD in a closed economy a) The “Keynesian cross” 4. SR equilibrium & adjustment to eqm 5. Link to savings & investment 6. Multiplier 7. Public policy implications Reading:   pp. 158-162 (again), 215-229, 234-240, 250- 252, 254-257, 315-316, and 324-325 from  Macroeconomics in Context
Image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon
The Labor Market in the Keynesian Model Certain aspects of real-world human psychology & institutions may make it unlikely that wages are sufficiently flexible to clear the labor market. Focus on why wages don’t drop enough to clear the labor market, despite surplus of labor. “wage stickiness” as explanation for positive cyclical unemployment.
Image of page 2
Reasons for Wage Stickiness 1. Psychological resistance to (nominal) wage reductions 2. Minimum wage legislation 3. Long-term contracts 4. Insider-outsider theory 5. Efficiency wage theory a) Improve employee productivity b) Reduce employer’s search costs c) Reduce employer’s training costs
Image of page 3

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon
Recall… Behavioral relationship: AD = C + II + G + NX Accounting Identity: Y = C + I + G + NX Equilibrium Y = AD Insufficient AD: Y > AD & leakages > injections Excessive AD If economy is not in macroeconomic equilibrium, then something has to adjust… Classical model… Keynesian model 
Image of page 4
Image of page 5
This is the end of the preview. Sign up to access the rest of the document.

{[ snackBarMessage ]}

What students are saying

  • Left Quote Icon

    As a current student on this bumpy collegiate pathway, I stumbled upon Course Hero, where I can find study resources for nearly all my courses, get online help from tutors 24/7, and even share my old projects, papers, and lecture notes with other students.

    Student Picture

    Kiran Temple University Fox School of Business ‘17, Course Hero Intern

  • Left Quote Icon

    I cannot even describe how much Course Hero helped me this summer. It’s truly become something I can always rely on and help me. In the end, I was not only able to survive summer classes, but I was able to thrive thanks to Course Hero.

    Student Picture

    Dana University of Pennsylvania ‘17, Course Hero Intern

  • Left Quote Icon

    The ability to access any university’s resources through Course Hero proved invaluable in my case. I was behind on Tulane coursework and actually used UCLA’s materials to help me move forward and get everything together on time.

    Student Picture

    Jill Tulane University ‘16, Course Hero Intern