What is the importance of macroeconomic models

total macroeconomic models of closed economies

Table of Contents

  1. characterization
  2. Associated keywords

characterization

Macroeconomic total models of closed economies are typically traditional Keynesian flex price models (Keynesianism), in which a simultaneous consideration of the macroeconomic goods market, the money and securities market as well as the labor market is carried out. In contrast to total models of open economies, macroeconomic total models of closed economies do not take into account international goods, services and capital transactions between domestic and foreign countries. They differ from New Keynesian macro models (New Keynesian macroeconomics) in that they do not have a complete micro-foundation. Macroeconomic total models have the great advantage that they represent the complex economic events in a manageable form, so that concrete statements about the current state of an economy are possible. With the help of such models, both a macroeconomic equilibrium analysis can be carried out and the effects of stabilization policy measures on macroeconomic target variables of the state can be examined.

In contrast to total macroeconomic models, microeconomic total models disaggregated models that only serve to formally depict economic relationships and do not allow any concrete statements about economic reality. Such Walras models or models of general equilibrium are primarily concerned with proving the existence and stability of a simultaneous equilibrium on all goods and factor markets and thus with the basic functioning of a market economy system.

Total macroeconomic models of closed economies are based on the Demand side from the goods money market model for the closed economy (IS-LM model), which is reduced to a macroeconomic goods demand function (macroeconomic total models of closed economies, demand side) and on the Supply side from the equations of the labor market as well as a neoclassical production function, which are combined into a macroeconomic supply function (macroeconomic total models of closed economies, supply side). A distinction is made between the Keynesian underemployment case, which is associated with a rigid monetary wage rate (so-called Keynesian variant), and the neoclassical full employment case, which is characterized by complete price and wage flexibility (neoclassical variant). While the macroeconomic supply function is price-inelastic with complete price and wage flexibility, it shows a price-elastic course with a rigid monetary wage rate. The consequence of this is that demand management measures (monetary and fiscal policy) cannot have any real income or employment effects (macroeconomic total models of closed economies, stabilization policy) in the presence of flexible wages and prices and an overall economic equilibrium with full employment. In contrast, monetary and fiscal policy measures can generally have an impact on employment if the monetary wage rate is rigid and there is a situation of underemployment. Both the Keynesian and the neoclassical variant of total macroeconomic models are included in the so-called neoclassical synthesis, as they consist of a Keynesian-modeled demand side and a neoclassical supply side. Further developments exist in the form of New Keynesian total models, which can be assigned to the New Neoclassical Synthesis.

Associated keywords

Further keywords for this main topic:

Macroeconomic total models of closed economies, supply side; Macroeconomic total models of closed economies, demand side; Macroeconomic total models of closed economies, stable states of equilibrium; Macroeconomic total models of closed economies, stabilization policy; Macroeconomic total models of closed economies, further developments; Total models of large open economies; Total models of open economies; Total models of open economies, supply side; Total models of open economies, demand side; Stabilization policy in a large open economy; Stabilization policy in a small open economy; Stabilization policy in a currency union; IS-LM model; IS-LM-Z model; IS-LM-Z model of a monetary union; Mundell-Fleming model; IS curve; LM curve; Keynes Effect; Income-expenditure model; Multiplier; Stabilizer; Saving paradox; effective demand; Consumption function; Saving function; Ex ante analysis; Excess supply; Excess demand; aggregated supply curve; aggregated demand curve.