Macroeconomic Models

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)

Keynesian Models (1936-1969)

  • 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, and income.

The New Classical Model (1970-

  • Real Business Cycles shifts 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 (1982-

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