Egwald Economics: Macroeconomics
Elmer G. Wiens
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Macroeconomics Theory, Testing, and Applications
AD-AS Model of the Closed Canadian Economy | Comparative Statics of the AD-AS Model of the Closed Canadian Economy
Comparative Statics Of
The Classical & Keynesian AD-AS Model
production functions | labour market equilibrium | aggregate supply
consumers | producers | money demand | government
product market equilibrium | money market equilibrium | aggregate demand
Closed Canadian Economy Version
Shifting the Economy's Equilibrium.
On this dynamic webpage, you can adjust the Classical & Keynesian AD-AS models' parameters and see how the values of the equilibrium macroeconomics variables and aggregates change. By changing the parameters of the labour market and the aggregate production function, you can shift the economy's aggregate supply schedule. Moreover, by changing the parameters of the product and money market, you can shift the parameters of the economy's aggregate demand schedule. The intersection of the aggregate supply and demand schedules determines the economy's equilibrium price level, and national income & product. Feeding these equilibrium values into the equations that underlie their schedules determines the level of employment, the money wage rate, the economy's wage bill, the interest rate, the demand for money, consumer expenditures, investment in capital by firms, and government revenues.
System 1 (in blue): the parameters of the macroeconomics functions reflect the average values of the macroeconomics aggregates of the Canadian economy during the years of 2001 - 2003. Government expenditures g = 210 billion dollars,and the money supply ms = 200 billion dollars. The level of employment of N = 26 billion hours per year for the wage sector of the economy is an approximation, as is the corresponding average money wage rate of W =
23.65 dollars per hour. The index of prices for products (price level, GDP deflator) is set at P = 1 (the base year for the system 1 models).
Notes: 1. The values of all macroeconomics aggregates, other than N, W, and P, are expressed in billions of dollars.
2. With the System 1 model, the Classical and Keynesian models obtain the same results, a consequence of the harmony between the long-run and short-run economies.
System 2 (in red): you set the parameters of the macroeconomics functions to whatever values you want, within limits. Try to replicate the macroeconomics aggregates for some year. Initially, I set government expenditures g = 200, and the money supply ms = 220. These changes will shift the IS and LM curves, respectively, along with the aggregate demand schedule. To shift the aggregate supply schedule, I changed the labour supply schedule by flattening its slope, perhaps the result of an increase in the number of workers offering their services to firms.
Set the parameters for the aggregate production function, the labour market, consumers, producers, and the government to the values you want.
THEN CLICK THE SUBMIT PARAMETERS BUTTON BELOW!