Keynesian Model of National Income Determination
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The Keynesian Model of
National Income Determination
National income determination
The component parts of the model
O
Cd, W, J
Y
Cd + W (=Y)
£100bn
£100bn
The 45 line
0
20
40
60
80
100
120
0 20 40 60 80 100 120 140
Con
sum
ptio
n (£
bn)
Y
C
Y (£bn)
50
50
C = 8
Y = 10
mpc = C / Y = 8/10 = 0.8
The consumption function
0
20
40
60
80
100
120
0 20 40 60 80 100 120 140
Con
sum
ptio
n (£
bn)
Y
C
Y (£bn)
Cd
The consumption of domestic product
O Y
Cd + W (=Y)
W
Cd, WThe W function
O Y
Cd + W (=Y)
W
Cd, W
Cd
The W and Cd functions
100
70
30
O Y
Cd + W (=Y)
W
Cd, W
Cd
100
The W and Cd functions
National income determination
Equilibrium(a) W = J
O Y
W
Cd, W, JDeriving equilibrium national income
O Y
W
Cd, W, J
J
Y1
b
a
Deriving equilibrium national income
O Y
W
Cd, W, J
J
Y2
c
d
Deriving equilibrium national income
O Y
W
Cd, W, J
J
Ye
x
Deriving equilibrium national income
National income determination
Equilibrium(b) Y = E
O Y
Y = Cd + W
W
Cd, W, J
J
Deriving equilibrium national income
O Y
W
Cd, W, J
J
Cd
Y = Cd + WE = Cd + J
J
Deriving equilibrium national income
O Y
W
Cd, W, J
J
Cd
Y = Cd + WE = Cd + J
Y1
f
e
Deriving equilibrium national income
O Y
W
Cd, W, J
J
Cd
Y = Cd + WE = Cd + J
Y2
h
g
Deriving equilibrium national income
O Y
W
Cd, W, J
J
Cd
Y = Cd + WE = Cd + J
Ye
x
z
Deriving equilibrium national income
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