KeynesianCompStat

KeynesianCompStat - interest rates. 4 Extension Extension...

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

View Full Document Right Arrow Icon
Comparative Static Analysis Comparative Static Analysis of the Keynesian Model of the Keynesian Model Macroeconomics I ECON 309 -- Cunningham
Background image of page 1

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

View Full DocumentRight Arrow Icon
2 Simple IS-LM Analysis Simple IS-LM Analysis 0 ) , ( 0 ) ( ) ( = - = - - P M r Y L G r I Y S 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: 0 = + = - dr L dY L dG dr I dY S r Y r Y = - 0 dG dr dY L L I S r Y r Y Write in matrix form:
Background image of page 2
3 Simple IS-LM, Continued Simple IS-LM, Continued 0 0 1 0 0 1 + - = - = + = - - = Y r r Y Y r Y r Y Y Y Y r r Y r r Y r Y r r L I L S L L L I S L S dG dr L I L S L L L I S L I dG dY Applying Cramer’s rule for solution: 0 , 0 0 , 0 < < r Y Y r I S L L Because, by assumption, the following hold: So, in a Keynesian economy, under the conditions given, cet. par. (i.e., prices), an increase in government spending increases GDP and
Background image of page 3

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

View Full DocumentRight Arrow Icon
Background image of page 4
Background image of page 5
This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: interest rates. 4 Extension Extension What if prices are flexible? To examine this, we must include the labor market and real wage computation. ) , ( ) ( ) ( ) (--=--=-=- P M r Y L G r I Y S N F Y N P w N d Define the following variable as a convenience: ( 29 2 - = P w P w N X d 5 Extension (Continued) Extension (Continued) 1 1 1 1 2 2-=------= Jac X F L P M L L I S F X P M L I F X dG dY N r r Y r Y N r r N (Note that the denominator turns out to be positive.) < -= dG P w d dG dP dG dr Jac X L dG dN r Similarly:...
View Full Document

This note was uploaded on 02/25/2012 for the course CHEM 309 taught by Professor Staff during the Spring '11 term at UConn.

Page1 / 5

KeynesianCompStat - interest rates. 4 Extension Extension...

This preview shows document pages 1 - 5. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online