Keynesian 45 Degree Diagram
Planned investment is less than actual investment.
Keynesian 45 degree diagram. Keynesian 45 o line model. Aggregate expenditure and gdp are both function of consumption investment government spending and net exports. A line that stretches up at a 45 degree angle represents the set of points 1 1 2 2 3 3 and so on where the measurement on the vertical axis is equal to the measurement on the horizontal axis.
Until a few years ago they were the main way in that the expenditure and income aggregates where analysed. You can see why this is called the 45 degree diagram. Nowadays aggregate demand and supply diagrams are preferred although many teachers still like to explain the situation using the good old 45 degree diagram.
From the circular of income model we know that national income must equal to consumption c net saving s import expenditure m and net taxes t. Many of you will have spent quite a lot of time looking at 45 degree diagrams or keynesian cross diagrams. This video introduces how to set up a 45 degree diagram to illustrate the keynesian lessons on the marginal propensity to consume the marginal propensity to save and the multiplier.
Similarly r 1 interest rate produces y 1 equilibrium income. In the short run with predetermined prices when output is greater than planned aggregate expenditures. A line that stretches up at a 45 degree angle represents the set of points 1 1 2 2 3 3 and so on where the measurement on the vertical axis is equal to the measurement on the horizontal axis.
The 45 degree line also known as the keynesian cross is a tool used by economists to show how differences in aggregate expenditures and real gdp can affect business inventories which will affect future levels of real gdp. Sometimes you can be asked to find the equilibrium value from the keynesian cross or the 45 degree line. The second conceptual line on the keynesian cross diagram is the 45 degree line which starts at the origin and reaches up and to the right.
By the end of this chapter you will be able to i explain the keynesian 45 degree line model and ii define inflationary gap and deflationary gap. The second conceptual line on the keynesian cross diagram is the 45 degree line which starts at the origin and reaches up and to the right. Facebook twitter google pinterest linkedin whatsapp.
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