The static analysis can be applied to other areas of economics, like Keynesian national-income model too. If we consider the simplest Keynesian national-income model below:
where Y = Endogenous variable National Income
C = Endogenous variable Planned Consumption Expenditure
= Exogenous variable Investment
= Exogenous variable Government Expenditure
a = Parameter variable Autonomous Consumption
b = Parameter variable Marginal Propensity to Consume
The equations above give us the Y* and C* values as:
Both Y* and C* have the expression (1 - b) in the denominator, thus the restriction b
1 is necessary, to avoid division by zero.
where Y = Endogenous variable National Income
C = Endogenous variable Planned Consumption Expenditure
a = Parameter variable Autonomous Consumption
b = Parameter variable Marginal Propensity to Consume
The equations above give us the Y* and C* values as:
Both Y* and C* have the expression (1 - b) in the denominator, thus the restriction b
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