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

Pros and cons of var, Since their inception, VAR models have been at the ce...

Since their inception, VAR models have been at the centre of many controversies associated with econometric modelling. The recurring criticism throughout history is due to the mode

Investment, What are the basic differences between the investment curve and...

What are the basic differences between the investment curve and an investment demand curve for an economy

Gross domestic product, In 1 to 2 sentences respond to the following commen...

In 1 to 2 sentences respond to the following comment. "Cleaning your own house is not counted in gross domestic product because it does not represent economic production."

International trade, what does international trade fails to its claims ?

what does international trade fails to its claims ?

Secondary effects in addition to the direct effect, Subsidy programs are li...

Subsidy programs are likely to have a number of secondary effects in addition to the direct effect on dairy prices. What impact do you suppose farm subsidies are likely to have on

Economy could become stuck, According to Keynes, the economy could become s...

According to Keynes, the economy could become stuck at a low income level if: A. aggregate demand and aggregate supply are independent of one another. B. declines in aggregate dema

Trade policy - summary, TRADE policy: We are now in a position to sum ...

TRADE policy: We are now in a position to sum up our analysis of India's trade policy. First, India's trade policy has always been very intricately related to India's basic de

Chartered a bus to atlanta, A group has chartered a bus to Atlanta. The dri...

A group has chartered a bus to Atlanta. The driver costs $200, the bus costs $500, and parking in Atlanta will be $90. You have already paid $700 to reserve the bus and a driver. T

Difference between productive and allocative efficiency, Explain the differ...

Explain the difference between productive and allocative ( economic ) efficiency. Explanation of productive efficiency, e.g. output at AC minimum Define to the effect th

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