For H3 Economics students to
practise
1. Income-Expenditure Model ie Simple Keynesian Cross
Model (2 sectors case)
C = C(Y - T) = a +
bYd
where a > 0 and 0 < b < 1
a = autonomous
consumption
b = marginal propensity to consume
Yd = Disposable Income
I =
Io
where Io = exogeneous investment
M/P =
L(r,Y)
where Lr < 0, Ly > 0
P =
Pf
where Pf = Fixed Price Level
What would be the equilibrium for the
keynesian cross model look like in a
standard IS-LM diagram ?