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

National Income, distnguish betweenNational income at market price and Nati...

distnguish betweenNational income at market price and National Income at factor cost, explain the importance of the distinction

Answer for questions, How can we answer in Economic terms this questions: W...

How can we answer in Economic terms this questions: Why should the government consider to increase tax on cigarette

Economics of scale exist, This economics of scale exist for all of the foll...

This economics of scale exist for all of the following reasons except: a. bureaucratic inefficiencies b. management problems c. failures in information flows d. firm size is to

Problems of measuring productivity in actual work situations, Discuss the p...

Discuss the problems of measuring productivity in actual work situations. Also how productivity might be measured for each of the following industries? Finance and insurance (examp

What is demand for money, Q. What is Demand for money? Demand for mone...

Q. What is Demand for money? Demand for money The demand for money depends negatively on R and positively on the Yin the IS-LM model As fo

Phillips Curve!, Using a short-run Phillips Curve, illustrate the change in...

Using a short-run Phillips Curve, illustrate the change in inflation and unemployment resulting from the increase in profit expectations.

Enumerate the statement- interest rates with longer maturity, Enumerate the...

Enumerate the statement- Interest rates with longer maturity Since loans with longer maturities are substitutes for overnight loans, the central bank also has some control o

World real gdp per capita, ihave real gdp per capita for all countries in w...

ihave real gdp per capita for all countries in world .. how can i calculate world real gdp per capita by using the data.

The budget line, The Budget Line: The Consumer Constraints The consumer...

The Budget Line: The Consumer Constraints The consumer would like to maximize his satisfaction by reaching the highest possible indifference curve. But in the process, he faces

Marginal, using the marginal utility theory explain the consumption patten ...

using the marginal utility theory explain the consumption patten of consumers

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