The Keynesian Income – Expenditure Model
Question: “The Keynesian income – expenditure model assumes that the macro economy can be fine tuned and controlled in the same way as an engine in a car”. Evaluate the validity of this assertation.
The economics is concerned of the production and consumption of goods or services. It also deals with the problem of scarcity. It can be divided into two sections, microeconomics and macroeconomics. The microeconomics deals the demand and supply for the individual part of the economy. The macroeconomics focuses mainly on the concerned economy as an aggregate demand (AD) and aggregate supply (AS). Where the aggregate demand defines the total amount of spending in the economy and aggregate supply means the total national output. There are four major targets for the macroeconomics. They are economic growth, unemployment, inflation, balance of payments and exchange rates. The problems are related with the balance state of aggregate demand (AD) and aggregate supply (AS).
Economic growth: All the countries in the world, the governments will try to achieve the higher rates in the economic growth for a longer period of a time. This means that all the governments want a stable growth rather avoiding the recessions and short term growth. The rate of economic growth in the national output normally defined over a period of 12 months (Sloman, J. 2009: 388). The achievement of the long term economic growth depends on the amount of resources available and their productivity. Two policies can be used to reach the higher growth is to focus on the demand side or the supply side and allowing the free market, so that the private sector enterprises can flourish well.
Unemployment: The other main macroeconomic target for the government is to reduce the amount of unemployment. Because it shows the amount of human resources wasted and the benefits which they get will be a loss for the government revenues. The number of unemployed can be defined as those of working ages who were without
The economics is concerned of the production and consumption of goods or services. It also deals with the problem of scarcity. It can be divided into two sections, microeconomics and macroeconomics. The microeconomics deals the demand and supply for the individual part of the economy. The macroeconomics focuses mainly on the concerned economy as an aggregate demand (AD) and aggregate supply (AS). Where the aggregate demand defines the total amount of spending in the economy and aggregate supply means the total national output. There are four major targets for the macroeconomics. They are economic growth, unemployment, inflation, balance of payments and exchange rates. The problems are related with the balance state of aggregate demand (AD) and aggregate supply (AS).
Economic growth: All the countries in the world, the governments will try to achieve the higher rates in the economic growth for a longer period of a time. This means that all the governments want a stable growth rather avoiding the recessions and short term growth. The rate of economic growth in the national output normally defined over a period of 12 months (Sloman, J. 2009: 388). The achievement of the long term economic growth depends on the amount of resources available and their productivity. Two policies can be used to reach the higher growth is to focus on the demand side or the supply side and allowing the free market, so that the private sector enterprises can flourish well.
Unemployment: The other main macroeconomic target for the government is to reduce the amount of unemployment. Because it shows the amount of human resources wasted and the benefits which they get will be a loss for the government revenues. The number of unemployed can be defined as those of working ages who were without
References: 1. Sloman, J., Wride A., (2009) 7 edn. Economics. : FT Prentice Hall 2 3. John B Davis (2010) 'Uncertaininty and Identity: a post Keynesian approach '. Erasmus Journal for Philosophy and Economics 3 (1), 33-49 4 5. Melmies, J., (2010) 'New Keynesians versus Post Keynesians on the theory of prices '. Journal of Post Keynesian Economics 32 (3), 445 6 7. Palley, T. I., (2009) 'Imports and the income-expenditure model: implications for fiscal policy and recession fighting '. Journal of Post Keynesian Economics 32 (2), 311-324 8 9. Monovoisin, V., Phileppe L. (2009) 'Keynes and the real world: Davidson, money, and uncertainty '. Journal of Post Keynesian Economics 32 (1), 43-60 10 11. Davidson. P., (2009) 'Reply to contributors to the discussion of the central themes of John Maynard Keynes '. Journal of Post Keynesian Economics 32 (1 ), 73 -83