Book contents
- Frontmatter
- Dedication
- Contents
- Preface
- Software Requirements and Opening a Macro-Enhanced Workbook
- Introduction:Why Simulation and Excel?
- 1 Charting in Excel
- 2 Economic Growth Literacy
- 3 The Solow Model
- 4 Macro Data with FRED in Excel
- 5 The Keynesian Model
- 5.1 Introduction
- 5.2 The Keynesian Cross: KCross.xls
- 5.3 The Money Market: MoneyMarket.xls
- 5.4 The ISLM Model: ISLM.xls
- 5.5 The ISLMADAS Model: ISLMADAS.xls
- References
5.2 - The Keynesian Cross: KCross.xls
from 5 - The Keynesian Model
Published online by Cambridge University Press: 05 May 2016
- Frontmatter
- Dedication
- Contents
- Preface
- Software Requirements and Opening a Macro-Enhanced Workbook
- Introduction:Why Simulation and Excel?
- 1 Charting in Excel
- 2 Economic Growth Literacy
- 3 The Solow Model
- 4 Macro Data with FRED in Excel
- 5 The Keynesian Model
- 5.1 Introduction
- 5.2 The Keynesian Cross: KCross.xls
- 5.3 The Money Market: MoneyMarket.xls
- 5.4 The ISLM Model: ISLM.xls
- 5.5 The ISLMADAS Model: ISLMADAS.xls
- References
Summary
The income-expenditure model had its debut in Paul Samuelson's 1939 paper on the multiplier-accelerator interaction theory of the business cycle; in that paper Samuelson draws the consumption function in expenditure-income space and determines equilibrium in the goods market at the point of intersection of the C + I line (with investment given autonomously) with the 45° line. Although it is confined to a mere two pages in Samuelson's paper, in less than a decade this model became the backbone of Samuelson's 1948 principles text.
– Amitava K. DuttQuick Summary
To access KCross.xls, visit
http://www.depauw.edu/learn/macroexcel/excelworkbooks/ISLMModel/KCross.xls
KCross.xls introduces the Keynesian Model. It emphasizes equilibration via unintended inventory changes and displays both the familiar income–expenditure diagram and savings equal to investment. The comparative statics properties of the model are explored, with G and T multipliers defined and computed.
Screencasts
• http://vimeo.com/econexcel/introkcross: introduction to the Keynesian Model stressing the concept of equilibrium and explaining how equilibrium Y is determined; shows how Solver can be used to find the equilibrium solution
• http://vimeo.com/econexcel/compstaticskcross: shows how changes in exogenous variables affect equilibrium Y; the concept of elasticity is applied, and Solver is used to find the change in G needed to move the economy to full-employment Y
• http://vimeo.com/econexcel/multiplierkcross: explains the concept of a multiplier and how the G and T multipliers depend on the MPC
Introduction
Since the eventual goal is mastery and understanding of the ISLMADAS Model, it makes sense to begin carefully and slowly with the goods market and Keynesian Cross diagram. Unlike the Solow Model, students will have a passing acquaintance from introductory economics of Keynesian income determination, but there are subtle and fundamental issues that must be clearly explained to build a strong footing on which to erect a complicated superstructure.
Common Problems for Students
The dual nature of Y as output and income is a confusing concept that merits careful explanation. It is easy to see that consumption (C) is a function of income, and, with investment (I) and government spending (G) given, this makes planned expenditures (PE) also a function of income since PE(Y) = C(Y) + I + G. But things start to break down when we solve the model by setting Y = PE(Y).
- Type
- Chapter
- Information
- Teaching Macroeconomics with Microsoft Excel® , pp. 147 - 152Publisher: Cambridge University PressPrint publication year: 2016