Problem with the keynesian model, Macroeconomics

Assignment Help:

The problem with the Keynesian model

We can classify two problems with the Keynesian model as developed so far:

1. Π is exogenous. Although inflation may temporarily deviate from wage inflation, this deviation can't be too large and it can't last for too long (since real wages would become unreasonable low or unreasonable high). This model has no determination of Πw and hence no complete determination of Π. A model which predicts an inflation of around 6% by presuming a wage inflation of 6% isn't very useful. Keynesian model with inflation is hence incomplete.

2. It is quite unreasonable to presume that Πw would be independent of Y. More reasonable would be to model Π Was a positive function of Y. If we are in a boom, L would be above its average and unemployment below its average. In such a situation, it's reasonable to expect wage inflation to increase.

To solve these problems, we have to make Πw endogenous. We do this by Keynesian model adding the Phillips curve.


Related Discussions:- Problem with the keynesian model

HELP, Suppose the US and Mexico both produce semiconductors and auto parts ...

Suppose the US and Mexico both produce semiconductors and auto parts and the US has a comparative advantage in semiconductors while Mexico has a comparative advantage in auto parts

Draw the strategic form game, Consider a two-player game where player A cho...

Consider a two-player game where player A chooses "Up," or "Down" and player B chooses "Left," "Center," or "Right". Their player is as follows: When player A chooses "Up" and play

Economic analysis and typical managerial decisions, ECONOMIC ANALYSIS AND T...

ECONOMIC ANALYSIS AND TYPICAL MANAGERIAL DECISIONS Despite the differences between microeconomic analysis and macroeconomic analysis, there is considerable overlapping and inte

Artificial intelligence and neural networks, Problem >> Explore the rel...

Problem >> Explore the relationship between Artificial intelligence and Neural networks. The systems which use this type of intelligence are known as artificial intelligent

Combination price of capital decreased, In reference to the above question,...

In reference to the above question, assume you know the combination of inputs that minimizes cost. What would happen to this input combination if the price of labor increased? What

Illustrate aspect depends on producers and consumers surplus, Illustrate th...

Illustrate the aspect depends onto producers and consumers surplus. a. How much advantage do producers and consumers receive by the existence of a market? b. How is the welf

Money, what are the three motives of holding money?

what are the three motives of holding money?

Stock of a particular company, Suppose that you have bought a total of 3100...

Suppose that you have bought a total of 3100 shares of stock of a particular company. You bought 1200 shares of stock at $17 per share, 900 shares of stock at $11 per share, and th

State the term fall in the exchange rate, state the term fall in the exchan...

state the term fall in the exchange rate A fall in the exchange rate must make UK exports price competitive in international markets and increase demand for them. This should

Mean and variance, Compute the mean and variance of the following discrete ...

Compute the mean and variance of the following discrete probability distribution. Where X=2, and P(x)=.5. Where X=8 and P(X) .3. Where X=10 and P(X) =.2.

Write Your Message!

Captcha
Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd