Illustrate and discuss the simple keynesian model. What are its policy Essay

Illustrate and discuss the simple keynesian model. What are its policy implications - Essay Example nt of time, government intervention was the prime needs to stabilize the economy and role of the government gets severely distorted under an open economy. The following is a very simple representation of his theory known as the Simple Keynesian Model. For the above-mentioned model we assume that the aggregate price level is fixed. The central idea of Keynesian model is the output to be at the equilibrium level, it has to be equated with the aggregate demand. If ‘Y’ stands for total output, that is, the GDP and ‘E’ equals the aggregate demand, then equilibrium condition requires: The aggregate demand or the desired expenditures on output is a summation of household consumption or ‘C’, desired business investment demand or ‘I’, and government expenditure or ‘G’ (government expenditure is nothing but the government sector’s demand for goods and services). Incorporating all these components into the equilibrium condition, the equilibrium condition can be written as: Now, national income or ‘Y’ in general can be decomposed into three parts – one part of the national income gets consumed (C), one part gets paid in taxes (T) and the rest is saved (S). So we may write: So, the equilibrium condition for output in Simple Keynesian Model is desired business investment equal to realized investment. At any disequilibria situation, (Ir – I) will either be greater than or less than zero. Ir and I may differ in the following ways. In the above case, (Ir-I) represents the unintended inventory accumulation. This is the amount by which the total output level surpasses the aggregate demand and will result in the unsold output that exceeds the level of desired inventory of the firms. In this situation there is an inventory shortfall of (I-Ir) which is again undesired or unintended. Here demand exceeds production and the firms end up selling more than planned. Thus inventory falls short of the desired level. The equilibrium is reached where Ir=I. It

Needs and Wants in American Society Essay Example | Topics and Well Written Essays - 750 words

Needs and Wants in American Society - Essay Example One reason why there seems to be a discrepancy in the definition of need in American society is that people do not seem to care even if such a so-called â€Å"need† would actually â€Å"[reach] the point of being physically harmful† (Sowell 189). One would basically whine that he â€Å"needs† more chocolate although he has just consumed five bars of Mars in an hour. Perhaps, for a lack of a more appropriate word or for some problem with semantics, the English language would simply let us use the word â€Å"need† for anything that we want including desires, cravings and addictions. Indeed, Americans have â€Å"an addiction to consumption† that may even qualify as a â€Å"sickness† (Quindlen 508). This â€Å"sickness† is more like a neurosis about having the latest Marc Jacobs bag, or a paranoia about not having an iPhone 5. The phrase â€Å"I need something† can now therefore be replaced with â€Å"I am paranoid about this† or simply â€Å"I am sick.† Moreover, part of this sickening addiction to consumption which American consumers conveniently call â€Å"need† is the idea of overusing credit. ... American consumer continues to rationalize, what he believes he â€Å"needs† are actually only his â€Å"wants.† Second, there is a problem with how the word â€Å"need† is defined because American consumers do not seem to recognize the idea behind trade-offs. Understanding and doing a trade-off is simply a making that small sacrifice of giving up the purchase of one thing considered to have an advantage for another which is actually truly desirable. The problem with the average American consumer nowadays is that he does not realize that â€Å"at other prices [he] can get along with what [he has]† (Sowell 190). A huge factor in this lack of ability or responsibility to do trade-offs is the addiction caused by the media, but an equally great factor is the laziness on the part of the consumer in filtering out various product information from the media. Consumers who do not think will naturally adopt the â€Å"acquisition habits of a 7-year-old† and a 7-year-old definitely has the faintest idea of what a â€Å"need’ is (Quindlen 509). One can therefore not expect that a 7-year-old has any idea about good trade-offs. Naturally, if all consumers were of this age, then tons of useless â€Å"trifles† would replace good and useful products that could have resulted from sensible trade-offs (509). In short, those who perpetuate the misuse of the word â€Å"need† are actually those who not only believe that â€Å"Marc Jacobs is God† but especially those who have not realized that â€Å"stuff does not bring about salvation† (509). If one considers shopping and consumption as religion, then it follows that he is very much willing to heed its gospel and even do everything to attain enlightenment and salvation with it. Anything proclaimed by this gospel as important is therefore merely a