The macroeconomics section is organized historically. The dates listed
below are guided in part by publication dates for major works and in part by
the failure of the Keynesian Model to emerge unchallenged from the 1960's
and by inability of its challengers to account for the recession of 1982.
The Classical Model (1776-1935)
- The Simple Keynesian Model, a
vastly oversimplified view of the economy, constructs an
equilibrium without referring to the labor market. The
point of this exercise is to
shows that the economy can be in an equilibrium that is far from full employment.
- The Keynesian IS/LM Model
shifts from the Classical Model's focus on the wage rate to a focus
on long-term and short-term interest rates. These interest
rates are taken to be
equal. Income and the interest rate are the variables
that adjust to achieve equilibrium. The model is presented in
two versions, one with fixed prices and one where the Aggregate
Supply/Aggregate Demand extension adds adjustments in the nominal
price level to the mix.
- The Mundell-Fleming Model adds the
Balance of Payments (BP) curve to the IS/LM Model. Equilibrium
is reached by adjustments in the exchange rate, the interest rate,
The New Classical Model (1970-
- Real Business Cycles
attention from nominal interest rates back to the real factors of
production that dominated the original Classical Model. By
considering a "Robinson Crusoe" economy with only one representative
agent, the model is able to explain business cycles without
introducing even a nominal wage rate.
New Keynesian Economics
The recession of 1982 reopened the debate about the real effects of
nominal monetary policy, and the decade of the 1980's reopened the debate
about the stimulative effects of government budget deficits.
The Classic Economic Models collection includes a recent
reworking of the Keynesian Model:
- The IS/MP Model addresses a
perceived shortcoming of the IS/LM Model by replacing the price
level with the inflation rate and by replacing the nominal interest
rate with the real interest rate.
Adam Smith, The Wealth of Nations, 1776.
John Maynard Keynes, The General
Theory of Employment, Interest and Money, 1936.
John R. Hicks, Mr. Keynes
and the Classics, 1937.
Milton Friedman, The Counter-Revolution in Monetary Theory, 1970.
Robert J. Barro, Second Thoughts on Keynesian Economics, 1979.
Robert J. Gordon, What is New Keynesian Economics?, 1990.
N. Gregory Mankiw and David Romer,
New Keynesian Economics, 1991.
Romanian translation of this page by Alexander Ovsov