User:Nick Gardner /Sandbox: Difference between revisions

Revision as of 01:15, 21 November 2009

Let
y = national income

The demand for money

M = lPy + L(y)

The consumption function

s = s(y)

The production function

y = y(n)

The labour market

dy/dn = W/P

Investment

i = i(r)

Savings

s = i

Sticky wages

W =W_o,

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-The way in which the  model  explains  the tendency for the economy to settle down to an equilibrium following  shock or a change in behaviour,  can be examined in words by supposing that there is a reduction in the public's propensity to save, meaning that people spend more of their money on "consumption goods". That would prompt an increase in the supply of those goods, in the total income of those employed  in their production, and thus an increase in national income. However, that increase in expenditure and income would mean that more of the available money would be used as "transactions balances" reducing the amount available for  people to hold as cash reserves for speculative purposes. That would make people  willing to pay more in interest to restore their speculative reserves and the resulting rise in interest rates would stimulate saving and discourage investment and so check the growth in income.
+&nbsp;
+==The Keynesian equation system==
+Let<br>
+&nbsp;&nbsp;&nbsp;&nbsp;y&nbsp;=&nbsp;national income<br>
+The demand for money
+:::::: M&nbsp;=&nbsp;lPy&nbsp;+&nbsp;L(y)
+The consumption function
+::::::  s&nbsp;=&nbsp;s(y)
+The production function
+::::::y&nbsp;=&nbsp;y(n)
+The labour market
+::::::dy/dn&nbsp;=&nbsp;W/P
+Investment
+::::::i&nbsp;=&nbsp;i(r)
+Savings
+::::::s&nbsp;=&nbsp;i
+Sticky wages
+::::::W&nbsp;=W<sub>o,<sub>