Summary of the cross model, Macroeconomics

Assignment Help:

Summary of the cross model

The below list summarizes the cross model and associates it to classical model: 

  • Labor Market: Real wages W/P is exogenous in cross model (W is exogenous in all the Keynesian models and P is exogenous in cross model). Determination of L is very different from the classical model.
  • Aggregate supply Ys is determined by production function Ys = f (L, K). Again, we always remove any trend in GDP and its components.
  • Aggregate demand isn't always equal to the aggregate supply. Say's Law doesn't apply in any of the Keynesian models. Consequently we should describe how aggregate demand and GDP is determined in cross model.
  • The Quantity theory of money doesn't apply anymore. Fortunately, we don't need it because P is given in the cross model.
  • Consumption was a function of real interest rate in the classical model. In cross model it's a function of Y.
  • Investment was also a function of r in classical model. In Keynesian model it's exogenous.
  • Government spending (G) is exogenous though net tax NX is endogenous (in the classical model, they were both exogenous). Net tax is presumed to be a function of Y that means government savings will be endogenous (SG(Y) = NT(Y) - G).
  • Exports (X) is exogenous, as it's in the classical model though imports (Im) is endogenous. Imports will also be a function of Y. Net imports and external savings will thus also be endogenous variables (NX(Y) = X - Im(Y) and SR(Y) = Im(Y) - X).
  • Total savings and household savings were functions of the real interest rate in classical model. In the cross model they are functions of Y.
  • the real interest rate is exogenous in cross model. This follows by the fact that nominal interest rate is exogenous and prices are constant (peshould bezeroandr=R).

 


Related Discussions:- Summary of the cross model

United states population, In 2010, Forbes magazine listed Bill Gates, the f...

In 2010, Forbes magazine listed Bill Gates, the founder of Microsoft, as the richest person in the United States. His personal wealth was estimated to be $53 billion. If there were

What is the value of the test statistic, For the United States, the mean mo...

For the United States, the mean monthly Internet bill is $32.79 per household (CNBC, January 18, 2006). A sample of 50 households in a southern state showed a sample mean of $30.63

Estimate efficient outcome, The city of Johnstown decides to build a new st...

The city of Johnstown decides to build a new stadium to attract a basketball team from the city of Rosendale.  One economic advisor suggests that the stadium should be fi

Determine the daily amount and ipa, A brewery produces two kinds of beer, s...

A brewery produces two kinds of beer, stout and IPA . Each batch of stout sells for $60 per unit while each batch of IPA sells for $108. Both products require malt, hops, barley, f

Determine the output level-wholesale price, Assume an industry with one ups...

Assume an industry with one upstream and one downstream monopoly. The upstream monopoly produces Q , which is sold solely to the downstream monopoly. The downstream monopoly faces

Determine the exchange rate, Determine the exchange rate When a currenc...

Determine the exchange rate When a currency is freely floating, the central bank doesn't have to set monetary policy to alter the external value of the currency unless instruct

Relationship between oil prices and economic, It was observed that followin...

It was observed that following a one standard deviation shock to the price of oil, interest rates rose sharply immediately afterwards reaching a maximum after two quarters. Then fr

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